Written by F. Thomas Schlappatha, CFP®
A new provision in the SECURE (Setting Every Community Up for Retirement Enhancement) Act 2.0 allows you to create an income stream for yourself now and benefit your favorite charity in the future. Signed into law in December 2022, the SECURE Act 2.0 now allows you to establish an income-producing charitable gift annuity with your required minimum distribution (RMD).
Let me explain. If you are at least 70½ years old with an IRA, you may benefit your favorite charity using a qualified charitable distribution (QCD). This distribution of any amount up to $100,000 is sent directly to the charity by your IRA administrator and counts toward your RMD. Because it is sent directly to the charity, you do not include this QCD amount as income on your tax return.
Starting in 2023, you can use this QCD option (one time only) with $50,000 to establish a charitable gift annuity (CGA). The $50,000 counts toward your RMD and is included in the QCD annual limit noted above. The CGA will provide income for your lifetime at a rate based on your age and calculations using life expectancy tables. After your lifetime, the remainder in the CGA goes to the charity. For example, establishing a $50,000 CGA at age 75 would provide annual income of approximately $3,300 which can be set up in monthly, quarterly or annual payments.
Your professional advisors can help guide you through the benefits for maximizing your RMDs to reduce your taxes and support your favorite charity.
F. Thomas (Tom) Schlappatha is a CERTIFIED FINANCIAL PLANNER™ with Morgan Stanley in Torrance and a member of Torrance Memorial’s Professional Advisory Council. Contact him at 310-543-0209 or FT.Schlappatha@morganstanley.com.
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