New Incentives for Charitable Giving
Below are basic facts on a new law that allows Qualified Charitable Distributions from traditional IRAs to fund life income gifts. While there are limits on these gift opportunities, it is likely the start of something very big for charitable gift planning.
- A donor can make this once-in-a-lifetime gift election in only one tax year (hopefully with success and more lobbying, this may change).
- The aggregate limit of IRA funded life income gifts in 2025 is $54,000 (meaning, you can only create up to $54,000 in these gifts, in one tax year only).
- All life income payments to donor will be fully taxable as ordinary income (no capital gains or tax-free).
- The annuitant(s) must be the donor and/or the donor's spouse.
- Since these count as QCDs (Qualified Charitable Distributions), any amount contributed towards one of these IRA funded life income gifts will also count towards your RMD (Required Minimum Distribution). The legislation allowing QCDs to fund life income gifts also increased the required beginning date (RBD) to age 73. But you can still make a QCD as early as age 70.5.
- No itemized charitable deduction. But the QCD is excluded from income "above the line," so think of this as the “tax-free” gift!
- Both regular QCD gifts and QCD gifts for split interest gifts will be adjusted for inflation each year.
Why is this so important?
Firstly, IRAs in particular are a huge financial asset class of the baby-boomers - in the $ Trillions - and already represent a phenomenal opportunity for legacy gifts.
Additionally, donors can now lock in guaranteed income for life at favorable rates while also making a significant legacy commitment.
As this law hopefully expands, life income gift programs in particular will become more and more important to our organization's future.
