On December 29, 2022, President Biden signed into law the long-awaited legislation known as SECURE 2.0 as part of the Consolidated Appropriations Act of 2023 (“CAA”), a $1.65 trillion-dollar omnibus spending bill.

The nonprofit sector in particular has rallied around a component of this legislation addressing a planning tool called the Qualified Charitable Distribution (QCD). You’re likely already familiar with the QCD and perhaps your organization even has received these distributions.

As a reminder, a QCD allows a donor who is 70½ or older to make an annual transfer of up to $100,000 from an IRA to a qualifying public charity, such as your organization or an endowment fund at the Winona Community Foundation designed for your organization. The donor does not need to pay income tax on the distribution and, for a donor who must take required minimum distributions (RMDs) from retirement plans, a QCD counts toward that year’s RMD. Under the new law, the annual per-taxpayer $100,000 QCD cap is now slated to be indexed for inflation, which will allow taxpayers to give even more from their IRAs directly to charity.

In addition, with the passage of SECURE 2.0, your donors now have the opportunity to make a once-in-a-lifetime QCD transfer of up to $50,000 to a charitable remainder trust (CRT) or other split-interest gift such as a charitable gift annuity (CGA) to a qualifying public charity. These components of the new law are called the “Legacy IRA” provisions.

Here are three steps to take advantage of the new laws as you plan your 2023 fundraising strategies.

  • Although the new law allows a donor to make a QCD to a CRT, that may not always be feasible because typically trustees of CRTs, such as financial institutions, require a minimum of $100,000 to establish a trust. Plus, a donor can’t use a QCD to transfer IRA assets to an existing CRT, according to the Legacy IRA rules. Before you discuss Legacy IRAs with your donors, talk with the team at the Winona Community Foundation to explore the CRT options available to you, especially if you are already working with the community foundation through an agency endowment fund. The Winona Community Foundation can help you with a strategy to secure endowment gifts through CRTs created under the new Legacy IRA technique.
  • Consider leveling up your CGA program, starting with talking with the team at the Winona Community Foundation to find out how we can help. While the $50,000 Legacy IRA cap may present challenges for donors who want to use a CRT, the CGA, on the other hand, could be a perfect fit. CGAs typically can be set up at much lower minimums than a CRT. In addition, CGAs are becoming more attractive as interest rates rise and the corresponding payout rates increase. Be aware, though, that CGAs created to receive a QCD contribution are different from other CGAs in a few important respects under the new law. For example, annuity payments are fully taxable, and must be at least 5%. Although the 5% requirement is not an issue at the moment due to the new, higher payout rates, this stipulation could present a challenge in the future. Again, the Winona Community Foundation can help you with a strategy to secure endowment gifts through the new Legacy IRA technique using CGAs.
  • Update your marketing materials to include language about the Legacy IRA. You don’t need to go into detail, but it is important that your website, one-pagers, newsletters, and social posts at least mention the possibility that a donor over age 70½ could support your organization and its endowment through a CRT or a CGA created using IRA assets. Reach out to the Winona Community Foundation for help and ideas.