The Consolidated Appropriations Act of 2023, passed in December 2022, includes a win for philanthropy! While this legislation will most likely be used by larger organizations and institutions, we wanted to be sure all of our partners, colleagues and friends were aware of a new giving opportunity presented by this Act.
Here’s what you need to know:*
First, what is a QCD?
This Act includes a provision that affects Qualified Charitable Deductions or QCDs, so let’s cover the basics:
- A QCD is a tax-free transfer from an Individual Retirement Account (IRA) to a qualified 501(c)(3) organization. It can satisfy the taxpayer’s required minimum distribution, all while donating to a philanthropy.
(Required Minimum Distribution: When a taxpayer reaches a certain age, the exact age being dependent on the taxpayer’s birth year, a required minimum distribution, or RMD, is an amount that must be withdrawn from their retirement account annually. Taxes must also be paid on this amount as it is considered taxable income.) - With a QCD, a person over 70 ½ can distribute an outright gift of up to $100,000 per year from their IRA to a 501(c)(3) organization. This distribution does not qualify as a charitable deduction on their income taxes, but they are not taxed on the transferred amount. Woo hoo!
- Bottom line – in one fell swoop, a qualified taxpayer can satisfy a tax law requirement, donate to a charity, AND avoid income taxes – win, win, WIN!
How did the Act affect QCDs?
- The Act added a new type of QCD that allows individuals to distribute up to $50,000 from an IRA toward funding a gift annuity, a charitable remainder annuity trust (CRAT) or a charitable remainder unitrust (CRUT).
- These options allow donors to essentially make an (irrevocable) donation contract: the donor gives the charity a large donation, and in return, they receive a regular stream of income from the organization for the rest of their life. At the end of their life (and possibly their spouse’s life, depending on how it’s set up), the charity receives the remainder of the donation.
- The $50,000 IRA transfer for a life-income plan provision is only available for someone who is 70 ½ years and older. The transfer can be made in only one tax year, and as of now, Congress has only allowed for this provision to happen once in someone’s lifetime.
If you have any follow-up questions, we hope you will reach out to our team. We will always make ourselves available as a resource to you as you advance your mission and philanthropy. If you don’t already have a direct contact at Carter, please email info@carter.global, and we’ll put you in touch with a senior-level consultant specific to your needs.
*Fundraising professionals and individuals should confer with their tax accountant or financial advisor before making any decisions. This has been written for informational purposes only and should not be relied upon as professional advice.