Without a lot of fanfare, Congress actually passed something and it was signed into law by the President!

One of my clients alerted me to this new law – not sure if that says more about me or the stealthiness of this one slipping through.

In any case, the Secure Act will be law as of January 1, 2020, and a few of its changes may impact Planned Giving!

Here is my quick overview of the items that may impact Planned Giving as well as general giving to nonprofits:

1. No more stretch inherited stretch IRAs – the new law requires non-spouses to withdraw inherited IRA funds within 10 years.  That may not sound so exciting but it may have an impact on planned giving in a few ways.  Firstly, in my first speech (to a small board) as a planned giving officer in 1998, I started talking about how IRAs are so heavily taxed and how people should at least consider leaving them to charity – I was promptly interrupted by an experienced attorney who said the stretch IRA was the answer to over-taxation of IRAs (end of that point).  And, he was right…until this new law.  Inherited IRAs, some of which might be very large, could be subject to a lot of taxes (in fact, I think this will likely be a cash windfall for the government as many will just live with the new rule).  Time to step up education efforts on this – why should so much of your IRA go to the government in taxes?
2. Charitable Remainder Trusts and Charitable Gift Annuities are actually one solution for those looking to replace the stretch IRA!! – Incredible as it may seem, but Charitable Remainder Trusts in particular are being touted as an option for those looking to create a lifetime income stream for heir from IRAs.  Basically, leave your IRA to a CRT (or CGA) to your heir and they can receive income for life!  No income tax on the funds going into the CRT, only income tax on the income payments (probably all ordinary income – another decent deal for the government).  More to come on this soon (probably in a new webinar).
3. IRA RMDs (Required Minimum Distributions) now don’t start until age 72 (up from age 70.5) – This basically means that people are not forced to start withdrawing from their IRAs for an extra 2 years (not sure how this effects other retirement accounts – probably applies to 403b and 401k accounts, too).  I would say this is good news for charitable IRA beneficiary designations – maybe people start withdrawing later and leave more for charities. Maybe. I wonder why they put this in – it’s the opposite of getting rid of the stretch IRA, less tax money assuming many decide to wait.  Hmmm.
4. Removal of age limits to contributing to IRAs – The rule was once you reached age 70.5, you could no longer make contributions to regular IRAs. Now, there is no age limit.  Meaning:  planners may come up with reasons for older people to continue to contribute to their IRAs into their 70s and up.  For those over age 50, you can contribute up to $7,000 a year to your IRA and get above-line tax deduction!  With all of the deduction loses from the 2018 tax bill, you may still have people looking for ways to reduce immediate taxes. All of this could lead to even larger IRA accounts, and presumably larger charitable IRA beneficiary designations.
5. Possible side effect for IRA qualified charitable distributions – (warning – this is a quote from MarketWatch.com, not a particularly trustworthy source and I couldn’t verify if this was true)  “After reaching age 70 1/2, you can make qualified charitable contributions of up to $100,000 per year directly from your IRA(s). These contributions are called qualified charitable distributions, or QCDs. Effective for QCDs made in a tax year beginning after 2019, the $100,000 QCD limit for that year is reduced (but not below zero) by the aggregate amount of deductions allowed for prior tax years due to the aforementioned Secure Act change. In other words, deductible IRA contributions made for the year you reach age 70 1/2 and later years can reduce your annual QCD allowance.”

After I spend a few days digging into this new law, I will see if I have enough material for one of my webinar tax briefings. Stay tuned!!!