Legacy IRA Act

Planned giving professionals have been waiting over 20 years for legislation that would allow donors to fund charitable gift annuities and charitable remainder trusts with funds from their IRAs without negative tax consequences.

On December 29, 2022, the President signed the Fiscal Year 2022 Omnibus Appropriations Bill which included a provision to create a new charitable planned gift opportunity. Beginning in 2023, donors can now use their IRAs to fund a life income gift such as a charitable gift annuity or charitable remainder trust. While there are nuances, this may be the perfect opportunity for donors looking to create a legacy and receive income for life.

Here are the basic facts:

1. A donor can make this once-in-a-lifetime gift election of funding a life-income-gift (such as a Charitable Gift Annuity) with an IRA. This can be done in one tax year only.
2. The aggregate limit of IRA-funded life-income gifts in that year is $50,000 (meaning, you can only create up to $50,000 in these gifts, in one tax year only).
3. The annuitant(s) must be the donor and/or the donor’s spouse.
4. All life income payments to donor will be fully taxable as ordinary income (no capital gains or tax-free).
5. Since these count as QCDs (Qualified Charitable Distributions), any amounts distributed into life income vehicles will count toward that year’s 100k limit on QCDs.
6. A direct distribution from your donor’s IRA to a life income plan counts towards their Required Minimum Distribution for that year. (Note the required beginning date has been pushed back to age 73.)
7. There’s no charitable deduction. But like the QCD, think of it as “the tax-free” gift — as an above-the-line deduction, whether or not you itemize.
8. Both the $50,000 and $100,000 limits will be adjusted for inflation each year.