In late March, the U.S. House of Representatives passed the bipartisan Securing a Strong Retirement Act (SECURE 2.0). Presently, the bill is under review in the Senate, and changes are possible. There are a number of provisions that may either make it to the finalized bill or be considered again by a future Congress.
Here are the key provisions likely to impact charitable giving directly or indirectly.
Provisions Deferring Start of Income
- 106 increases the age for the required beginning date of mandatory distributions to 73 beginning on Jan. 1, 2023. The required minimum distribution (RMD) age rises to 74 on Jan. 1, 2030, and 75 on Jan. 1, 2032. The extended required minimum distribution date may have the benefit of taxpayers feeling less of a need to make either a qualified charitable distribution (QCD) from their account or a deductible charitable contribution from their taxable accounts.
- 202 would make qualified longevity annuity contracts (QLACs) more appealing by removing the limits. Under current law, there is a limit on the amount of premiums an individual can pay for a QLAC: the lesser of $135,000 or 25% of the individual’s account balance. Since the QLAC is a deferred annuity, the product allows distributions to be delayed until a future date but not later than age 85. There could be fewer older supporters interested in charitable gift annuities as a source of income. Additionally, the amount transferred to the QLAC does not have any required minimum distributions until the predetermined payout date.
- 201 removes the RMD impediment for life annuities. Commercial annuities issued in connection with eligible retirement plans can provide additional types of payments, such as certain lump sum payments and annual payments, that can increase at a rate of less than 5% per year. Under current law, all annuity payments must be nonincreasing or only increase under limited exceptions. Even a modest guaranteed increase of a few percentage points or a return of premium death benefits is impermissible. Those types of guarantees are normally needed by individuals to elect a life annuity under an IRA or defined contribution plan. To the extent QLACs are providing sufficient income to recipients, the appeal of income-oriented gifts, like the gift annuity, may be reduced.
Sec. 310 would permit a one-time election for a QCD from an IRA to a split-interest arrangement. Under current law, QCDs up to $100,000 are excluded from the gross income of the individual. QCDs also count for RMD purposes. This one-time election would be up to $50,000 (indexed) for QCDs made to certain split-interest entities, including charitable remainder annuity trusts, charitable remainder unitrusts and charitable gift annuities. The bill would also index the current $100,000 limit for inflation.
The March to Enactment of SECURE 2.0
Right now, financial and tax advisors are monitoring the progress of the legislation and anticipate passage before the end of the year. Also, remember any difference between the Senate’s and the House’s bill will need to be resolved in a conference committee.
But charitable intent must always be paramount even with deferred giving. The incentives under current and future tax laws are attractive to donors wanting to benefit the charities meaningful to them. The financial cost of giving will always be greater than zero.
By: Professor Christopher P. Woehrle, JD, LLM