SECURE 2.0 expands qualified charitable distributions (QCDs) by allowing a one-time only QCD of up to $50,000 to a split-interest entity. As a result of this new rule, there is now a great opportunity to fund a charitable gift annuity (CGA) with a QCD.
To understand the new SECURE 2.0 provision allowing QCDs to split-interest entities, it is helpful to review the rules for QCDs generally, since these rules will still apply. Here are the basics:
New Rules for QCDs to Split-Interest Entities
Prior to SECURE 2.0, QCDs could only be made to charities. They were not allowed to be made to split-interest entities. A split interest entity is a legal entity that allows a donor to receive a benefit during her lifetime or for a set term, with the remainder (anything left) benefiting a charity after the donor’s death. Qualifying split interest entities include:
There are some significant limitations. A QCD to a split-interest entity can only be done once in a lifetime and is limited to $50,000 (as indexed for inflation). The split-interest entity can only be funded with QCDs -- and no other funds. A CRAT or CRUT is probably not a good candidate for a QCD. It is unlikely that it would be worth the cost and work to establish a new trust just for a $50,000 QCD. These trusts are expensive to set up and administer. However, using a QCD to fund a CGA is a strategy that may be attractive to many IRA owners. A good number of charities already offer charitable gift annuities. Now these can be funded with a QCD.
By Sarah Brenner, JD
Director of Retirement Education
Ed Slott and Company, LLC
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Christian Cordoba, founder of California Retirement Advisors, has been a member of Ed Slott's Master Elite IRA Advisor Group since 2007.