SECURE Act Signed Into Law.
[Several provisions effective on date of enactment. Others set to become effective January 1, 2020.]
The Setting Every Community Up for Retirement Enhancement (SECURE) Act is an effort to boost Americans’ retirement savings, which are, overall, pretty poor. Really poor, in fact: A 2018 Northwestern Mutual study showed one in five of us have no retirement savings at all!
That presents a significant challenge for individuals and their families, giving us a unique opportunity to show how philanthropy can be an important way to give and to benefit your loved ones in your estate plan.
How it Works
The SECURE act aims to increase retirement savings with a number of incentives, including:
- Making it easier for employers to offer annuities through retirement plans
- Providing tax credits and other benefits to help small businesses offer 401(k)s
- Removing maximum age limits on IRA contributions for as long as the person is working
These are all improvements that should help people save — and save more (that Northwestern Mutual study I mentioned above also found that one in three Americans closest to retirement have saved under $25,000). And the other 1 in 3 Americans Have Less Than $5,000 in Retirement Savings. And Nearly half of adults have taken no steps to prepare for the likelihood that they could outlive their savings, where the majority believes that Social Security will not be around when they retire.
Things to Watch
In the planned giving world, however, we’ll need to keep an eye on some other provisions to see how things play out. The bill:
- Raises the RMD (required minimum distribution) age to 72. (Forbes and others say this is aimed at raising tax revenue,) but leaving the age for Qualified Charitable Distributions at 70 ½.
- Changes the Qualified Charitable Distribution so that, effectively, you have to choose between taking an IRA deduction or making a QCD (The QCD will be reduced by the amount of an IRA deduction).
- Sets a 10-year disbursement cap on inherited IRAs for non-spousal beneficiaries — eliminating the lifetime Stretch IRA.
Does this Help Charity?
The elimination of the Stretch IRA could mean a boost in charitable donations, because Charitable Trusts and Charitable Gift Annuities funded by the remaining IRA will be effective tax options to gift beneficiaries with retirement funds without taxation or required 10 year distribution rules.
From Scott Goldberger, at Kaufman Rossin, “An IRA owner may leave the IRA to a Charitable Remainder Trust (CRT), which would act as a stretch IRA, even under the new rules. A non-charitable beneficiary, such as a child, would receive annual payments from the CRT over his or her lifetime (or a pre-determined period of years), with income tax assessed as the payments are made. Whatever remains in the account upon the child’s death (or the expiration of the term of years) would pass to one or more charities of the owner’s choosing tax-free.”
It would also help a few individuals to build wealth, and therefore motivate them to “gift smart.”
Does this Hurt Charity?
In our opinion, the QCD change could possibly mean fewer overall donations, since donors looking for a tax break will basically have to choose between making a gift from an IRA or making it from other sources. By making a gift from an IRA account, the donor excludes that amount from her taxable income.
This could be a good thing for both individuals and nonprofits — but it will be up to us to educate ourselves about the changes, to educate our prospects and donors about their charitable options.