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Two Ways to Give from Your IRA—Including a New Opportunity for 2023Posted November 2023
Since 2006 it has been possible for individuals aged 70½ or older to make outright charitable gifts from a regular IRA that cumulatively do not exceed $100,000 per year. These gifts, called qualified charitable distributions (QCDs), have two tax benefits: The amount transferred within this limit is not subject to income tax, and the amount transferred, again within this limit, will count towards IRA required minimum distributions (RMDs) if the IRA owner has attained the age when such distributions must begin. These gifts have been particularly appealing to IRA owners who will not need all of their IRA assets for retirement and who would like to help a charitable organization such as ours meet current needs.
Funding Life-Income Plans with Assets from Your IRA Now Possible
There are other individuals with IRAs who have wanted to make a charitable gift to support our work using IRA funds but have hesitated to reduce retirement income. Fortunately, legislation that became effective in 2023 enables IRA owners to make a one-time contribution of IRA funds for a life-income plan that will pay income for life to the IRA owner and/or that person’s spouse. This new legislation is expected to make IRA gifts possible for a larger number of people. Following is a comparison of outright IRA gifts and life-income IRA gifts:
Outright IRA Gifts
- The minimum age of the donor is 70½.
- The maximum dollar amount of contributions made in any year to all charities combined is $100,000. (This is reduced by any amount contributed for life-income gifts.)
- Contributions within this limit can be made in any year.
- The gift counts toward RMDs if they have begun.
- No income-tax deduction is allowed for a QCD of IRA funds. But since the distribution is not included in taxable income, it is equivalent to a charitable deduction and can benefit even nonitemizers.
- A charity can use the gift currently.
- Donors and spouses receive no income from the gifts.
Life-Income IRA Gifts
- The minimum age of the donor is 70½.
- The donor can elect to transfer IRA funds for one or more life-income plans in only one year during his or her lifetime. In whatever year the election is made, the maximum amount transferred cannot exceed $50,000. When a donor, in any year, makes both outright and life-income IRA contributions, the two together cannot exceed $100,000.
- The gift counts towards RMDs if they have begun.
- A life-income IRA gift, like an outright IRA gift, is a QCD provided it follows the rules summarized here. As such, an income-tax deduction is not allowed, but the amount transferred from the IRA is not included in taxable income. Thus, once again, there is an equivalent deduction.
- The amount of income that is paid to the donor and/or spouse depends on the particular plan and payout options that may be chosen.
- In most instances, none of the gift will be used for the designated philanthropic purposes until the end of the life of the donor and any spousal beneficiary. In other words, in contrast to an outright IRA gift, which is for current purposes, a life-income IRA gift is for future needs of the charity.
Possibly, you have already been making outright gifts to support our organization from your IRA. If so, we thank you and encourage you to continue. These gifts are greatly valued for meeting present needs. If you would like to explore a life-income fund IRA gift to us, whereby you can sustain both your future income and our mission, we would be pleased to discuss with you the benefits and procedure for arranging such a gift.
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