New Tax Tools for Giving: IRA Charity Rollover Gift Annuity

By: Cooper Melvin, CPA, JD

In late 2022, Congress authorized a new tool to lower Required Minimum Distributions (“RMDs”) and increase charitable giving. Effective as of now, taxpayers over age 701/2 can make a one-time distribution from their IRA into a Charitable Gift Annuity (“CGA”). It works like this:

1. A taxpayer finds a participating charity of their choice and signs a CGA agreement;
2. The taxpayer contacts their IRA administrator and sets up a Qualified Charitable Distribution (“QCD”) directly to the charity; and
3. In return, the charity pays the taxpayer a fixed sum of money for the rest of their life even if they exceed their life expectancy.

As a result, the distribution counts towards the taxpayer’s RMDs, it is not taxable and the taxpayer is set up with taxable annual payouts for life, all while giving to a favorite charity during his/her lifetime.

While this is a very attractive option for people who do not need the money and/or are inclined to give, there are a few restrictions to keep in mind. First off, a taxpayer can only take this kind of rollover distribution once in a lifetime and it must be completed in a single tax year. Furthermore, the amount of QCD for this purpose is limited to $50,000. Therefore, it is important that a taxpayer sets this up correctly and carefully chooses the charity that most aligns with the individual’s purpose. Finally, it is important to note that while QCDs are not taxable, they are also not deductible as a charitable contribution and the annuity payouts from the charities are fully taxable.

If you have questions about IRA Charity Rollovers to Gift Annuities or would like assistance with setting one up, please contact your BMSS tax advisor at (833) CPA-BMSS or visit our website for contact information.