A New Twist for IRA Gifts

IRA owners age 70½ or older can make direct gifts to public charities—qualified charitable distributions (QCD)—of up to $100,000 annually. Although no income tax deduction is available, the QCD can satisfy part or all of a donor’s required minimum distribution, thereby avoiding income tax that would normally be owed on the withdrawals. The SECURE 2.0 Act of 2022, passed as part of the Consolidated Appropriations Act, 2023, includes a provision allowing donors to fund charitable remainder trusts or charitable gift annuities with their gifts. The one-time election applies to transfers up to $50,000, from which a donor would receive payments of at least 5% annually for life.

The donor and/or the donor’s spouse are the only permitted payment recipients and the remainder trust or gift annuity can be funded only with the QCD gift. Payments, which must begin within one year of the gift, would be taxed at ordinary income tax rates.

Starting this year, the age at which required minimum distributions must begin is increasing to 73, gradually rising to age 75. A QCD might still be the best giving option for qualified donors. For example, Nick and Nora, both age 71, don’t have to take distributions from their IRAs this year, so a QCD does not replace money on which they would otherwise be taxed. However, the couple, who give about $20,000 annually to various charities, is unable to itemize their income tax deductions. The standard deduction for a couple, both age 65 or older, is $30,700 in 2023, so they receive no tax benefit from their generosity. If they make QCD gifts, they are contributing money that has never been—and never will be—subject to income tax. Their gifts may also reduce their required minimum distributions in future years.

Gift Annuity Rates Get Another Boost

The American Council on Gift Annuities increased recommended rates, effective Jan. 1, 2023. Rates were last increased on July 1, 2022. New payout rates range from 4.9% at age 60 to 9.7% at age 90 and older, compared with 4.5% and 9.1% previously. Recommended rates have also increased for two-life gift annuities and interest rate assumptions, used to calculate deferred gift annuity payouts and deductions, have also been raised.

The result means annuity payments will increase for gift annuities funded in 2023, while the charitable deduction will drop, as the chart shows (assuming a $10,000 gift and quarterly payments).

 

2022

 

 

2023

 

Age

Payout Rate

Deduction

 

Payout Rate

Deduction

 

 

 

 

 

 

65

$480 (4.8%)

$4,809

 

$540 (5.4%)

$4,160

70

530 (5.3%)

5,040

 

590 (5.9%)

4,479

75

600 (6.0%)

5,305

 

660 (6.6%)

4,836

80

700 (7.0%)

5,571

 

760 (7.6%)

5,191

85

810 (8.1%)

5,991

 

870 (8.7%)

5,695

Investing During Turbulent Times

The past year saw stock market volatility, foreign crises, soaring gasoline prices and tumultuous political campaigning. How should investors respond to such change? Many experts encourage investors to stick with their long-term plans but suggest they review and re-evaluate investment goals, risk tolerance and asset allocation and make adjustments as needed.

Risk tolerance and asset allocation generally relate to age, income, net worth, attitude toward risk and whether investors can afford to lose some principal.

Young parents may seek to build capital for an emergency fund, education of children or a secure retirement. Older people usually aim at living independently in retirement. Many retirees hope to be in a position to provide financial assistance to children and grandchildren if needed and eventually leave behind a legacy to their families and the charities they supported during their lives.

As you map out the remainder of this year, we hope you will consider making us a part of your own legacy through gifts that make lifetime payments to you or through a thoughtful gift from your estate.

Catch–Up IRA Contributions Set To Rise

Several provisions in the SECURE 2.0 Act of 2022, part of the Consolidated Appropriations Act, 2023, are designed to encourage additional savings for retirement. For 2023, the maximum contribution to an IRA is $6,500, a $500 increase over 2022. The catch-up amount for taxpayers age 50 or older is fixed at $1,000. Starting after 2024, a second catch-up will apply to those over age 60, topping out at $10,000 total. Inflation adjustments will also apply to catch-up amounts after 2023.

The catch-up increases come with a caveat: catch-up amounts will be treated as Roth contributions, meaning no income tax deduction is allowed, but distributions in future years will be tax–free.

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