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With the recent passage of SECURE ACT 2.0, some new rules regarding charitable giving have been enacted. When the original SECURE ACT was passed in 2017 there were sweeping changes to retirement planning including the elimination of the stretch rules on qualified plans. This meant that unless one of the few stated exceptions are met, any non-spousal inheritor must take out the full amount of the inherited plan within 10 years. For some, particularly those inheriting large plans, this meant getting thrown into a higher income tax bracket.

To tackle this issue, and for those who are charitably-minded, the use of a Give-It-Twice Trust can be a really good option. This enables the plan owner to leave their plan to the trust for the benefit of their heirs, most often children, with income payments spread over the lifetime of the heirs or a term of years not to exceed 20, usually paying around 5-6% per year. This means that for most income-beneficiaries, there's less concern about being thrown into a higher income tax bracket as distributions from the trust are spread out over their life-time rather than in 10 years or less. Additionally, the trust could structure to begin paying income at some future point, such as when the inheritor turns 65 or retires, potentially replacing income that was lost when they left the workforce. This also gives the trust time to grow for a period of years to produce even larger distributions when the income-stream is turned on.

The SECURE ACT also made permanent something called the IRA Charitable Rollover which allowed anyone 70 ½ or older to give up to $105,000/yr to qualifying charities, further enabling the distribution to satisfy a donor's required minimum distribution (RMD). There's no charitable deduction for the direct distribution to charity, but the donor doesn't have to recognize the distribution as income. The rollover to charity is commonly referred to as a qualified charitable distribution (QCD).

Fast-forward to January 1, 2023 and now SECURE ACT 2.0 gives us even more charitable gift planning power in something called a IRA to CGA Rollover. Owners of a traditional IRA who are at least 70 ½ years old may now make a QCD, up to $53,000 to qualifying charities in exchange for a charitable gift annuity (CGA) paying a fixed percentage of at least 5% or greater (depending on age) for life. There is no available tax deduction, but the QCD escapes income taxation whilst satisfying some or all of one's RMD. The new option is permitted only in one year for up to $53,000 and is only for the donor and/or their spouse. And once the annuitants have passed, any remaining principal value is available for charitable use. Donors can determine their age-based payout rate by visiting our CGA Calculator. TIP: Spouses each with their own traditional IRA may each give up to $53,000, either for separate CGA contracts or for a combined contract.

Support loved ones today and eventually Wabash College (or other favorite charities) by considering one of these creative strategies. And if you want to learn more about these or other gift/financial planning options, visit wabashgiftplanning.org or email us at [email protected] with your questions.


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