[ad_1]
Charitable Present Annuities (CGAs) have lengthy been a preferred manner for people with charitable intentions to plan their legacies. By contributing a lump sum to a charity in change for fastened recurring funds for all times (with any leftover funds after the donor’s dying going to the charity), the person can make sure that their funds are directed in the direction of a goal that aligns with their values, whereas additionally retaining a gentle supply of revenue for the remainder of their life. Nonetheless, the caveat with present CGAs has been that they may solely be funded with after-tax {dollars} earlier than the donor’s dying, which means that if a person solely had tax-deferred funds (e.g., in an IRA or 401(okay) plan) to contribute to the Charitable Present Annuity, they would wish to withdraw – and be taxed on – these funds first. Testamentary CGAs, however, will be established after a donor’s dying, funded with IRA or different belongings to supply revenue for an additional particular person. However the SECURE 2.0 Act, handed in December 2022, created the flexibility for people over age 70 1/2 to make a one-time Certified Charitable Distribution (QCD) of as much as $50,000 of IRA funds right into a CGA, with the quantity distributed to the CGA being excludable from the donor’s taxable revenue.
On this visitor publish, Kathleen Rehl, a semi-retired monetary advisor and educator now specializing in her personal property planning concerns, shares her expertise with creating her “Legacy IRA” rollover to a Charitable Present Annuity to assist her chosen nonprofits after Congress handed the SECURE 2.0 laws on the finish of 2022.
The potential advantages of the brand new Legacy IRA guidelines are threefold. First, they permit donors to boost their charitable giving legacy and guarantee their future charitable intentions are fulfilled. Second, they scale back the donor’s tax invoice within the yr the CGA is created by excluding the quantity contributed to the CGA from taxable revenue. And third, they create a secure lifetime revenue stream that may be paid to the donor and/or their partner.
All of which is essential throughout a time when members of the Child Boomer era, who’ve amassed unprecedented ranges of wealth in comparison with earlier generations, are getting ready to make choices on the best way to steadiness their intentions for transferring that wealth – whether or not that be passing it on to the following era of relations or pals, or offering for causes which can be significant to them – with their very own wants for sustainable retirement revenue. And whereas a Legacy IRA could solely be one piece of the puzzle (for the reason that $50,000-per-person lifetime restrict could solely signify a small portion of the belongings of many high-net-worth households), it could nonetheless function a novel and invaluable legacy and tax planning software – and given the minimal expense and trouble of organising and sustaining the CGA (for the reason that charitable group usually handles the entire administrative features of doing so), there could also be no purpose for any particular person with charitable intentions and lifelong revenue wants to not use it to the extent that the one-time $50,000 restrict permits!
In the end, for monetary advisors, the Legacy IRA will be one a part of a broader toolkit for serving to retired purchasers with values-based, purposeful legacy planning. By understanding the eligibility necessities and guidelines across the new regulation and reward annuities typically, and having a ‘recipe’ that purchasers can comply with for establishing their very own Legacy IRAs, advisors might help plant the seeds with their purchasers round strategic giving (whereas additionally differentiating themselves to potential new purchasers as a go-to useful resource for property planning and charitable giving)!
[ad_2]