Legacy IRA Act Q&A
The Legacy IRA Act provides a new charitable planning opportunity for donors age
70 ½ or older. Included in the Consolidated Appropriations Act of 2023, which became law in January, the Legacy IRA Act permits donors, under certain circumstances, to make a Qualified Charitable Distribution (QCD) from an IRA to fund a charitable gift annuity (CGA) or a charitable remainder trust (CRT). Explore our Q&A to facilitate conversations about this new gift planning opportunity with your clients.
What is the “Legacy IRA Act”?
A new law that permits donors to make a one-time tax-free QCD from an IRA in exchange for a life income gift (charitable gift annuity or charitable remainder trust).
Charitable Gift Annuity funded with QCD: A contract between a donor and a charity where the donor transfers assets from an IRA in exchange for the charity’s promise to pay a fixed annuity to the donor and/or spouse for life. When the annuitant(s) passes away, the charity receives the remainder.
Charitable Remainder Trust funded with QCD: A charitable giving vehicle that generates lifetime income for a donor and/or the donor’s spouse through a trust that is established for the lifetime of the beneficiary(ies) or a term of up to 20 years. When the trust ends, the remainder is distributed to one or more charities named in the trust document.
How much can a donor contribute through a QCD to establish a CGA or a CRT?
A maximum of $50,000 to fund one or more gifts at one or more charities in a single tax year. The total amount distributed counts toward the annual $100,000 limit for QCDs. The $50,000 life income gift limit and the $100,000 annual QCD limit will be adjusted for inflation annually beginning in 2024.
How often can a donor use a QCD to fund a life income gift?
Only in one single tax year. While a donor can make QCDs of up to $100,000 annually, the life income QCD can only be used in one year during the donor’s lifetime. However, a donor can make multiple life income QCD gifts during that single tax year, up to the $50,000 maximum.
Will a QCD to a life income plan count toward the donor’s RMD?
Yes. Just like an outright QCD, a QCD to fund a life income gift may count toward the donor’s RMD.
Is there an age requirement?
A donor must be at least age 70½ to be eligible to make a QCD contribution either outright or to fund a CGA or CRT.
Can a donor name other individuals to receive life income payments from CGA or a CRT funded with a QCD?
Only the donor and/or the donor’s spouse may be named as life income beneficiaries when a CGA or a CRT is funded with a QCD.
What is the minimum payout from a QCD life income gift?
The minimum payout for a life income gift funded with a QCD is 5%. Since CGA rates are based on the age of the annuitants, using the rates set by the American Council on Gift Annuities (ACGA) effective January 1, 2023, annuity rates for a single life age 70½ or two lives, both age 70½, will exceed 5%. However, donors should be aware that if one annuitant spouse is under age 70½, the suggested rate may have to be increased to meet the 5% minimum requirement.
Can a donor make an additional contribution to a CRT funded with an IRA QCD?
Additional contributions to a CRT funded with a QCD are not permitted.
Are QCD life income payments taxable?
Yes, all annual payments from CGAs and CRTs funded with QCDs are taxed as ordinary income.
Is the donor eligible for a charitable deduction for a CGA or CRT funded with a QCD?
While the donor cannot claim an income tax deduction, by utilizing the QCD, the donor can lower taxable income, which may provide greater income tax savings in comparison to making a cash gift and claiming an income tax deduction.
Can a donor fund a deferred or flexible deferred CGA with a QCD?
QCDs may only be used to fund standard CGAs.
If you have a client who is interested in supporting the University of Florida with a CGA or a CRT funded with a QCD, please contact UF’s Office of Estate & Gift Planning. We look forward to the opportunity to work with you to leverage this new gift planning opportunity for your charitably-inclined clients.