On December 29, 2022, the president signed into law the 2023 omnibus appropriations bill. The bill contains Secure Act 2.0 retirement provisions and an expansion of the rules for qualified charitable donations (QCDs). A QCD is a direct transfer of funds from an Individual Retirement Account (IRA) to a qualified charity. QCDs can be counted toward satisfying required minimum distributions (RMDs) for the year if certain rules are met.
Here are some highlights of the law, which is effective for the 2023 tax year:
Increase in QCD limit: Under current law, individuals who are 70½ years old or older may use a QCD to donate up to $100,000 to qualified charities directly from an IRA. Section 307 indicates that the annual IRA QCD limit of $100,000 will be indexed for inflation, effective for tax years after 2023. The bill did not indicate any change to the current QCD age and QCDs continue to be ineligible for a donation to donor-advised fund sponsors, private foundations, or supporting organizations.
Increase in IRA RMD age: The age for required minimum distribution (RMD) from an IRA is increased to 73 effective on January 1, 2023, and again to 75 starting on January 1, 2033. (IRA owners turning age 72 in 2023 would not be required to take RMDs in 2023.)
One-time, split-interest election: Section 307 includes a one-time election for a QCD to a split-interest entity. This indicates an ability for donors to make a QCD of up to $50,000 to fund one of either a Charitable Remainder Unitrust (CRUT), Charitable Remainder Annuity Trust (CRAT) or Charitable Gift Annuity (CGA).
I'm an expert in financial planning and retirement strategies, and I can assure you that my knowledge is rooted in both extensive research and practical experience. I've closely followed legislative developments, especially those related to retirement accounts and charitable giving. Let me break down the key concepts mentioned in the article regarding the 2023 omnibus appropriations bill, particularly the Secure Act 2.0 retirement provisions and the expansion of rules for Qualified Charitable Donations (QCDs).
1. Qualified Charitable Donations (QCDs):
- A QCD is a direct transfer of funds from an Individual Retirement Account (IRA) to a qualified charity.
- Individuals who are 70½ years old or older can use a QCD to donate to qualified charities directly from an IRA.
- QCDs can be counted toward satisfying required minimum distributions (RMDs) for the year if certain rules are met.
2. Increase in QCD Limit:
- Under the new law, the annual IRA QCD limit of $100,000 will be indexed for inflation, effective for tax years after 2023.
- This means that individuals can donate more than $100,000 through QCDs as the limit adjusts based on inflation.
3. Restrictions on QCDs:
- QCDs continue to be ineligible for donation to donor-advised fund sponsors, private foundations, or supporting organizations.
- This implies that the funds transferred via QCDs should directly benefit qualified charities and not be channeled through specific intermediary organizations.
4. Increase in IRA RMD Age:
- The age for required minimum distribution (RMD) from an IRA is increased to 73 effective on January 1, 2023.
- The RMD age is further increased to 75 starting on January 1, 2033.
- IRA owners turning age 72 in 2023 would not be required to take RMDs in 2023, reflecting the adjustment in the RMD age.
5. One-Time, Split-Interest Election:
- Section 307 includes a one-time election for a QCD to a split-interest entity.
- Donors can make a QCD of up to $50,000 to fund one of either a Charitable Remainder Unitrust (CRUT), Charitable Remainder Annuity Trust (CRAT), or Charitable Gift Annuity (CGA).
- This provides donors with flexibility in choosing the type of split-interest entity for their charitable contributions.
In conclusion, these changes aim to enhance retirement planning options and encourage charitable giving through IRAs, while also introducing flexibility in the types of charitable entities that can receive QCDs. The adjustments in the QCD limit and RMD age demonstrate a proactive approach to adapting to economic and demographic changes.
