New Legislation Enhances IRA Charitable Giving Benefits for Charitable Gift Annuities

On December 29, the Consolidated Appropriations Act of 2023 became law. This legislation expands charitable, tax-advantaged possibilities for those who want to use their qualified charitable distributions (QCD) to create a charitable gift annuity (CGA) or a charitable trust. Previously, QCDs were specifically excluded from funding CGAs.

A CGA is a lump-sum gift, from which donors or their designated beneficiaries receive annual payments, determined by the amount of the gift, age(s) of the beneficiary(ies) and rates in effect at the time of the gift.

While there is no charitable deduction for the QCD gift, it is free of federal income tax, counts toward your annual Required Minimum Distribution and is excluded from your gross income. Those who might benefit most by giving IRA assets want to leave a legacy and are taking only the minimum required IRA distribution, not itemizing deductions, or are subject to charitable deduction limitations.

To take advantage of this new option, donors must be aged 70.5 or older. As an added benefit, starting in 2024, the $100,000 limit for QCDs and the $50,000 one-time limit for gifts to a life income plan will be adjusted for inflation.

Additional parameters apply:

  • The CGA must be an immediate CGA, meaning payments must start within one year of establishment.
  • The CGA must be funded only by the QCD; no other assets may be combined to create the CGA.
  • The payout rate must be 5% or higher.
  • The annuitants must be the IRA owner, or spouse, or both the IRA owner and spouse.
  • Payouts from the CGA will be classified by the IRS as ordinary income.

If you are interested learning more about using a QCD to create a CGA, talk with your professional advisor to discuss your specific tax implications. If you would like to move forward or discuss CFWNC options, Becky Davis or Laura Herndon can provide additional information or next steps.