This is a really nice new tool to benefit the charity of your choice and get some lifetime income in return. I have been a serious laggard all my life in giving to my Alma Mater, but this gift option gives the ability to catch-up all at once at age 70.5 and annuitize another slice of my assets. Here’s the except from my College Alumni Office website:
Charitable Rollover Gift Annuity — Under a new law effective in 2023, some donors can make a QCD in exchange for a charitable gift annuity. There are some rules and limitations:
You can exercise this option only once during your lifetime.
There is an aggregate limit of $50,000.
All distributions you receive from your charitable gift annuity will be subject to income tax.
You can include your spouse as a recipient of the annuity payment.
There is no income tax deduction for this contribution, although there is no tax on the QCD either.
Example
Consider Alan, a 75 year old who would like to make a special contribution to support XXXXX University. Alan has substantial assets in his IRA, and he knows that he is facing an RMD this year. Even though he doesn’t really need the income, Alan knows that his RMD is going to increase his income tax. Instead, Alan chooses to make a $50,000 QCD to XXXXX University in exchange for a charitable gift annuity which will pay him $3,300 (6.6%) per year for the rest of his lifetime. Alan understands that he is allowed to make this election only one time, but he is looking forward to securing a stream of payments for his lifetime while reducing his RMD and making a generous contribution to XXXXX University.
I know… it’s a ONE-TIME thing. At age 70.5 you could do a Qualified Charitable Distribution to one (no annuity, but you do get rid of IRA money and any RMD liability), and then the Charitable Rollover Gift Annuity to the other. Pick whichever school gives you the best annuity payment!
I am not near the 70.5 age but this catches my interest. I have a charity in mind but I would want to stipulate how the money would be used by the charity. Don’t know if this something that is common and abided by charities. Seems like there are probably layers of red tape to deal with charitable giving and the restrictions they have. I mean, the charity would get my money but a portion of it would have to go to a very defined use. Basically I would want some money to be used for a scholarship type award.
It sounds like you’ve not found the right charity for you if you feel the need to try to micromanage the gift. The annuity is a perk, the main motivation is the gift.
I was unfamiliar with this option so I did a search and found this article which should be helpful for those considering it. The article was written by a semi-retired CFP and includes her step-by-step process for setting up her Charitable Gift Annuity.
I recently learned that the best thing to do to help with treating heirs good is to convert traditional IRA money to Roth money. The biggest takeaway is that you can do so some at a time… not the entire account at once! Yes, you must pay tax on the amount you convert. Do some each year and in time you will be leaving Roth accounts instead of traditional accounts.
Correct for most situations. The exception would be if the heir(s) are likely to be in a lower tax bracket when they inherit the IRA than your tax bracket at the time of conversion.
Getting tax-deferred money as an heir stinks relative to getting Roth money.
Let’s say the final parent dies at 85, they give a large sum to kids in their 50s, which are peak earning years.
Kids then have to take RMDs… they might get immediately boosted into a higher tax bracket just when they are trying to get their own pre-retirement Roth conversions done. I’m not going to do that to my kids. My estate will give them Roth or taxable assets… no tax-deferred.
Whether a heir benefits from inheriting a Roth IRA over a Traditional IRA is not always straightforward. The key factor in determining whether to pursue a Roth conversion hinges on comparing the individual marginal tax rates now with the anticipated tax rates for the heir during the 10-year withdrawal period from the inherited IRA. From the Bogleheads Wiki on traditional versus Roth IRAs: “For instance, if you are a high earner in the 32% tax bracket and expect to remain there throughout retirement, but your heirs are lower earners in the 12% tax bracket, traditional contributions may be preferable—your heirs will ultimately receive a larger inheritance after taxes.”