SUMMARY

Under the new Legacy IRA provisions passed in December of 2022, an IRA owner (donor) may fund a one life charitable gift annuity (CGA) with a qualified charitable distribution (QCD) for the benefit of their spouse. The donation benefits charity, can satisfy their required minimum distribution, and provides the security of a fixed lifetime income for their spouse.

STUDY

Dr. Peter Abbrecht is 93 and has never forgotten how he received his first research grant from the American Heart Association. He lives happily with his wife who recently turned 81. Peter’s two primary goals are to make sure his wife is well taken care of when he’s gone and to assist other young researchers through the American Heart Association. Peter has already named the Association to receive a generous gift via a marital trust and has arranged for his IRA to flow into a charitable remainder unitrust (CRUT) after his life, providing income to his two children and an eventual distribution to the American Heart Association.

Peter was pleased with the advantages of designing his IRA to fund a CRUT and it was no surprise when he called about an article in Forbes outlining the new Legacy IRA provisions. Peter learned that he could elect a one-time QCD transfer of up to $50,000 to fund a CGA. Any amount used to fund a CGA via a QCD can fulfill outstanding required minimum distribution requirement resulting in tax savings. Furthermore, even though the income from the CGA is fully taxable, Peter elected to fund a one life CGA to benefit his spouse. His spouse now receives $3,900 annually in quarterly installments for the rest of her life. Peter was quite satisfied with how funding a CGA from his IRA afforded him significant tax benefits, additional security for his wife, and additional support for his favorite charity.

ASSUMPTIONS

• Gift Date: November 2023
• Amount: $50,000
• ACGA Recommended Rate: 7.8%
• Number of Lives: 1 Life
• 7520 Rate: Not needed when using IRA assets to fund annuity.

KEY Features of Funding a CGA with a QCD:

• Peter fulfilled $50,000 of RMD by funding the CGA from his IRA and thereby saved on his income taxes.
• He provided additional security for his wife by funding a one life CGA which provides her with lifetime fixed income.
• Peter provided additional support to his favorite charity. 
• Remember, the IRA owner may only elect to fund CGAs from their IRA in one taxable year. Multiple CGAs may be funded in the same tax year, not to exceed the cap. The cap in 2023 was $50,000 and is indexed for inflation annually. There is no charitable income tax deduction, but RMD is fulfilled. Income from the CGA is fully taxable and the IRA owner may create a one life CGA for either spouse or a two life CGA to benefit both.