A new 2023 charitable gift annuity opportunity

If you’re at least age 70½, there’s a new law about charitable giving from your individual retirement account (IRA) that can help you support the causes you love even more. Here’s how you can make the most of this one-time giving opportunity and how a charitable gift annuity (CGA) can keep your generosity going strong throughout retirement.

The SECURE 2.0 Act, which became effective at the beginning of 2023, includes provisions that expand the rules for retirement accounts. Within those provisions is a unique one-time opportunity that allows givers age 70½ and older to use an IRA to fund a CGA with a qualified charitable distribution (QCD) of up to $50,000.

How does it work?

A CGA is a simple arrangement that involves a gift to charity in exchange for an annuity. You make the gift, and then you (and/or your spouse) receive fixed annuity payments at least annually for the remainder of your life.  Historically, you could fund a gift annuity with cash, securities, or real estate, but you could not fund it with a QCD from your IRA.

The new law allows you to make a QCD from your IRA to fund a CGA with a qualified charity.  The law also allows for a QCD to fund a charitable remainder trust (CRT), but the complexity and costs of a CRT make the gift annuity a more suitable choice for most people.

What is the new opportunity?

Individuals at least 70½ years old may make distributions from their IRA directly to a qualified charity. With a standard QCD, your IRA distributes cash to a qualified charity for amounts up to $100,000 annually. This CGA opportunity allows your QCD to partially fund the charity but also partially be returned to you in the form of an annuity. A QCD that funds a gift annuity is limited to $50,000, but only in a single year. In other words, if you make a QCD to fund a CGA in 2023, you cannot fund another gift annuity with a QCD in any other year. 

In addition, the $50,000 limit is a part of your overall $100,000 limit for all QCDs in that year. However, each spouse can fund a CGA from his or her respective IRA, bringing the total to $100,000 if they both use the maximum $50,000 allowed. As with standard QCDs, a QCD that funds a gift annuity does not qualify for an income-tax deduction, and the annuity payment you receive will be considered income to you. But it does open another opportunity for you – to advance the mission of your chosen charitable cause.

Payout rates for CGAs are recommended by the American Council on Gift Annuities (ACGA), and since 96 percent of charities use the ACGA recommendations, you don’t have to look from one place to another, wondering if you’ve found the best rate.

And the best news? In January of 2023, CGA payout rates increased again, with rates for this opportunity reaching 5 percent or more.

If you’re interested in funding a CGA with a QCD, connect with an NCF team near you.

As always, be sure to consult with your tax and financial advisors to ensure that funding a CGA with a QCD meets your needs and objectives.

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