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.
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.
What if you have two alma maters?
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!
Would that be in conflict with the rules regarding “donor-advised funds?”
My understanding of donor-advised funds is a donation of funds with conditions attached that would benefit the donor beyond it being tax deductible.
You cannot fund a DAF from an IRA.
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 don’t want an annuity. I would find great reward in knowing that donated money could be used to endow a scholarship program.
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.
No, because this isn’t a DAF.