Marketing Package Now Available
Crescendo has released a new marketing package to help you reach your donors about the new IRA legacy giving opportunity included in the Consolidated Appropriations Act of 2023. The package focuses on how your donors can make a one-time IRA charitable rollover of up to $50,000 to fund a charitable gift annuity.
This package includes a brochure, eblast, brief, extended postcard, insert and postcard. It is available in CresManager and CresPrint. Contact us for more information.
Secure Act 2.0 Benefits
The Secure Act 2.0 was included in The Consolidated Appropriations Act of 2023 (H.R. 2617). It includes many changes that will enhance and facilitate retirement benefits.
Since passage of the original Secure Act in 2019, both House and Senate Members have been working on further changes to encourage saving for retirement. Secure Act 2.0 will increase the required minimum distribution age, allow a larger catch-up contribution limit, facilitate rolling some Section 529 plans into Roth IRAs and generally expand access to retirement plans for moderate and lower-income employees.
- Required Minimum Distribution Age - Starting in 2023, the age for required minimum distributions (RMDs) will increase from 72 to 73. The RMD age will increase in 2033 to age 75 for individuals who attain age 74 that year. Individuals who are currently taking RMDs will continue to take a distribution each year based on their age. Individuals who are employees and not owners of 5% or more of their company may defer RMDs until retirement, even if that is after age 73 or 75.
- Catch-Up Contributions - Individuals who are age 50 and older are permitted to make an additional catch-up contribution. During 2023, the catch-up contribution for retirement plan participants over age 50 is $7,500. However, starting in 2025 individuals who are 60, 61, 62 or 63 will be permitted to make a larger catch-up contribution to Sec. 401(k), 403(b) or 457 plans. The new amount will be the greater of $10,000 or 150% of the catch-up limit for that year.
- Matching Contributions for Student Loan Payments - Many younger workers have substantial student loans and may not be able to make both their student loan payments and fund a retirement plan. Employers will be permitted to match the student loan payments with a contribution to a Section 401(k) or 403(b) retirement plan.
- Roth 401(k) Plans Exempt From RMDs - The Roth IRA is currently exempted from distributions even if the owner has reached the normal RMD age. Starting in 2024, Roth 401(k) plans also will be exempted from RMDs. With no required distributions, Roth IRA and 401(k) plans will be permitted to increase in value during the life of the owner.
- Required Minimum Distribution Penalty Reduced - The existing penalty for failing to take a required minimum distribution is 50%. Starting in 2023, this penalty will be reduced to 25%. If the plan participant corrects the failure in a timely manner, the excise tax on the penalty is further reduced to 10%.
- Section 529 Plans Rolled Over to Roth IRAs - A Section 529 plan is frequently used for college savings. If the 529 plan has existed for 15 years and is no longer required because the beneficiary has completed his or her education, then up to $35,000 of that plan may be rolled over into a Roth IRA for the benefit of that individual.
- Qualified Charitable Distributions Enhanced - The IRA charitable rollover or qualified charitable distribution (QCD) limit of $100,000 for 2023 will be indexed for inflation starting in 2024. Individuals age 70½ or older are permitted to make distributions from their IRA directly to charity and avoid recognition of income. The act expands the QCD by allowing a one-time transfer of up to $50,000 to a charitable remainder annuity trust, standard charitable remainder unitrust or immediate charitable gift annuity.
- Roth Catch-Up Contributions - Individuals age 50 and above are permitted to make a catch-up contribution to a retirement plan. Starting in 2024, individuals who have incomes over $145,000 will be required to transfer their catch-up contribution to a Roth 401(k) or IRA. This will require them to pay tax on the catch-up contribution, but the future distributions from the Roth account will be tax-free.
- Charity as Remainder Beneficiary - Individuals with a disability or chronic illness may take IRA distributions over their life expectancy, rather than ten years. If a qualified charity is the remainderman in a trust for the beneficiary who is disabled or chronically ill, the life expectancy stretch is still permitted.
IRA to Charitable Gift Annuity Rollover
Section 307 of the Secure 2.0 Act allows a one-time rollover of $50,000 from an IRA to a life income plan. This provision amends Internal Revenue Code Section 408(d)(8) and creates a limited one-time IRA rollover into certain qualified life income plans. This qualified charitable distribution (QCD) of up to $50,000 is permitted on or after January 1, 2023.
The $50,000 IRA distribution may be to a non-assignable charitable remainder annuity trust (CRAT), standard payout charitable remainder unitrust (CRUT) or immediate charitable gift annuity (CGA). A net income plus makeup unitrust or a deferred payment gift annuity are not qualified charitable entities. The CRUT or CRAT must be funded with only QCDs. There can be no additions of other assets.
The distribution must be to a charitable remainder trust with the remainder interest distributed to an exempt nonprofit. For a charitable gift annuity, it must have a 5% or higher payout rate and be qualified under Section 501(m)(5)(B). Some two life gift annuities with the IRA owner over age 70½ and a spouse under age 62 may need to increase the payout from the ACGA recommended rate to 5% in order to qualify. If charities have filed the ACGA rates or a fixed rate schedule in New York, California or other regulated states, this selective increase in payout rate may not be permitted by the state insurance commissioner.
The CGA, CRUT or CRAT payouts must either benefit the IRA owner or the IRA owner and spouse. All payments from a charitable remainder trust will be ordinary income. Because there is no investment in the contract under Section 72(c), all payouts from a gift annuity will also be ordinary income.
The bill permits an inflation adjustment starting in 2024. The $100,000 limit for current IRA rollover gifts (QCDs) and the $50,000 one-time QCD limit for gifts to a life income plan will be adjusted for inflation. The new numbers will be rounded to the nearest thousand dollars. The outright QCD must be a transfer from the IRA custodian to a qualified nonprofit and may not be to a donor advised fund or supporting organization.
With many Baby Boomers reaching their mid-70s in the coming decade, charitable gift annuities are entering a golden age. With greatly increased numbers of potential gift annuitants, the coming decades present the possibility of steady growth in the size of the primary gift annuity market. Donors appreciate the fixed payments and generous fixed rates. Although the opportunity to fund a CGA with a QCD is a one-time provision, donors will enjoy the fixed lifetime payments at favorable fixed rates. First-time IRA rollover to CGA donors may become repeat CGA donors using other funding sources.
The Secure Act 2.0 includes many changes designed to encourage retirement savings. These changes may also have a positive impact for charities by expanding charitable giving vehicles for IRA owners.
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