New Provisions for RMDs Make It Easier to Support the Causes You Care About

Gregory T. Rousos, President and CEO

The SECURE Act 2.0 was signed into law by President Biden on December 29, 2022. This legislation is designed to help Americans better plan for their financial future by expanding access to, and streamlining the administration of, many retirement plans.

Beginning in 2023, the Act provides some exciting new provisions regarding Individual Retirement Account (IRA) distributions and charitable donations. New Covenant Trust Company is delighted to share that we have made some adjustments to our policies related to trust administration in an effort to help our clients make the most of these new provisions.

How to Use Your RMD to Fund a CRAT

For those who are older than 70 ½, the Act allows you to make a Qualified Charitable Distribution (QCD) from your IRA. As a reminder, a QCD is a distribution from your IRA that goes directly to charity. The charity that receives your QCD must be a 501(c)(3) organization, eligible to receive tax-deductible contributions. Note that the QCD cannot go to a donor-advised fund, and there may be other restrictions.

The good news is, a QCD can be used to satisfy the required minimum distribution (RMD) from your IRA, if certain rules are met. In addition, the Secure Act 2.0 allows you to make a one-time election of up to $50,000 for a QCD to a fund Charitable Remainder Annuity Trust (CRAT). 

A CRAT provides a fixed payment (an annuity) to an individual or individuals for their lifetime, or for term of years as designated in the trust agreement. When the beneficiaries die or the term of years expires, the remaining assets in the CRAT are paid to the charity or charities that are named in the trust agreement.

Why Is This Exciting?  

A QCD that is used to fund a CRAT satisfies your RMD. And by choosing to use your RMD to fund a CRAT, you may be eligible for a charitable deduction of the estimated remainder interest that will be paid to the chosen charity on your individual tax return.

This essentially “stretches” the taxable ordinary income you receive from the QCD over many years. Because the QCD is placed in the CRAT, it will be distributed in a fixed amount over your or another beneficiary’s lifetime, or a term of years.

Choosing this strategy offers multiple benefits. First, it satisfies your RMD with a QCD, gives you a charitable deduction related to the CRAT, and stretches your distribution over time that results in taxable ordinary income from the IRA over many years.

We’re eager to help our clients benefit from this provision of the SECURE Act 2.0. That’s why NCTC recently reduced our minimum to establish a CRAT to $50,000, provided it is funded by a QCD. 

Please free to reach out to us for more information about retirement plan distributions, charitable giving and tax planning, establishing a trust or any other financial planning questions. Call us at 800-858-6127, Option. 6.

*NOTE: NCTC does not provide tax or legal advice. Investment products such as stocks, bonds and mutual funds are: NOT FDIC INSURED | NOT BANK GUARANTEED | MAY LOSE VALUE | NOT A DEPOSIT | NOT INSURED BY ANY FEDERAL AGENCY | NOT GUARANTEED BY NEW COVENANT TRUST COMPANY (NCTC)