(QCD) Qualified Charitable Distributions – $50,000 Distribution to CGA

Submitted by Matt Mason on Wed, 2023-04-26 15:29

I think the dust has settled on this issue but I am still seeing a few differing points.

A client is wanting to do a QCD from her IRA to a Charitable Gift Annuity for the full $50,000 limit under the new rules.
Here’s my interpretation of the new rule I’m wanting to confirm.

The $50,000 Distribution – CGA
It would count to the current years RMD totals.
It acts as a distribution from the IRA and a check sent to the CGA Custodian.
The CGA Custodian is receiving the funds as a check directly from the IRA, not as a transfer or rollover.
The annuity payments from the CGA Custodian would be similar to is she were funding with her own personal funds from that point forward. Partial taxable income(from interest), partial return of principal(per say)

I’ve had a proposal brought to me from a CGA that refers to this as a rollover/transfer of funds and the payments as 100% taxable income (like is never was treated as a distribution from retirement account). That doesn’t make sense to me as it never appears it was removed as a distribution under that arrangement to fund as CGA.

Addl Question: Once a lifetime ability for this type QCD to CGA?

Thanks for your help in clarification.
Matt



Submitted by David Mertz on Wed, 2023-04-26 17:01

  • The CGA appears to be correct.
  • § 408(d)(8)(F)(v)(II) Charitable gift annuities.–Qualified charitable distributions made to fund a charitable gift annuity shall not be treated as an investment in the contract for purposes of section 72(c).
  • Once in a lifetime is not quite accurate unless the QCD to a split-interest entity is the full $50,000.  Multiple QCDs can be made to split-interest entities in a single year as long as no QCDs to split-interest entities were made in a prior year and the combined total does not exceed $50,000.

 

Submitted by Alan - IRA critic on Wed, 2023-04-26 17:08

  • Yes, this is a one time annual transfer with a total limit of 50k to any new CGAs funded only by such  transfers. Tax reporting will probably be the same as for QCDs, perhaps with a specific flag such as CGA or similar shown on Form 1040 as is the case for QCDs. The transfer will count toward any remaining RMD requirement for the year.
  • However, Sec 307 of Secure 2.0 specifically states that the amount transferred to a CGA “shall not be treated as investment in the contract for purposes of Sec 72(c)”.  This agrees with the proposal info you received. Therefore, although the CGA payments made to client or spouse will apparently be 100% taxable at full ordinary income rates, they will probably never total 50,000 unless they live a very long time. This annual taxable income from the CGA payments will likely be offset by reduced future RMDs resulting from removal of 50,000 from the IRA balance plus future earnings on that 50,000.
  • And since there is no deduction for the remainder charitable interest either, this may not be such a great deal unless the chosen year for the transfer will be subject to a higher marginal rate than for subsequent  years. 

Submitted by David Mertz on Wed, 2023-04-26 23:41

How is it that a QCD to a split-interest entity does not count toward the $100,000 annual QCD limit?

Submitted by Alan - IRA critic on Thu, 2023-04-27 00:53

You are correct, it does count. Prior post has been corrected.

Submitted by Matt Mason on Mon, 2023-05-01 15:01

A couple of points to clarifiy:Regarding the new rule IRA to CGA, is 2023 the only year this option is available or is it available in future years?This type transaction can only be done in a single year?  up to $50,000 (could be $25,000 to one and $25,000 to another but must all be done in same calendar year)

Submitted by Alan - IRA critic on Mon, 2023-05-01 15:34

The option is available in any single year starting in 2023 or later. The 50k limit applied to the applicable year can be composed of more than one CGA as long as the total does not exceed 50k.

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