The Secure Act (Setting Every Community Up for Retirement Enhancement) took effect on January 1, 2020, and as a result an IRA may be an even more favorable gift to charity for tax-sensitive and charitably minded individuals.

There are several changes to IRA plans as a result of the SECURE Act, and two key ones that may make you want to consider your IRA as a way to achieve your charitable goals.

1. The age for Required Minimum Distributions (RMDs) was increased to 72, but the age for Qualified Charitable Distributions (QCDs) remained at 70 ½

As a result of the SECURE Act, taxpayers who will turn 70 ½ after January 1, 2020 will not be subject to RMDs until they reach the age of 72, previously distributions were required to begin at age 70 ½. This change provides the taxpayer with the benefit of compound interest. However, bigger balances mean bigger RMDs. For individuals who may not need the additional income and are concerned about the impact of their RMD on their Adjusted Gross Income (AGI), there is some good news.

The age at which an individual may begin making Qualified Charitable Distribution (QCD) did not change, and remains at 70 ½. This means, that an individual may reduce the future size of their required distributions at age 72 through charitable distributions beginning at age 70 ½. This has a benefit over conversion to ROTH IRA or withdrawing funds to reduce future RMDs as a QCD is not taxable and is not included in your AGI.

2. Limitations on the ability to stretch RMDs for inherited IRAs

Unlike most other assets, retirement accounts, such as an IRA or 401(k) plans, do not receive a stepped-up basis at death. This leaves your beneficiaries with a requirement to pay ordinary income tax when withdrawing from these accounts. For this reason, IRAs and other Qualified Plans have never been the best asset to leave to your heirs. Under the SECURE Act, they are even worse. The new law requires that certain beneficiaries who inherit an IRA after December 31, 2019 are required to take all distributions by the end of the 10th calendar year following the year of the IRA owner’s death. This eliminates the ability for certain non-spouse inheritors of IRAs to take distributions over the course of their anticipated life expectancy, as previously allowed. There are a few exceptions which include; a surviving spouse, children under the age of majority, disabled or critically ill beneficiaries, and individuals not more than 10 years younger than IRA owner.

For all other beneficiaries of an IRA, this is a major change. Under the previous law, a 40-year old beneficiary could spread the distributions over 40+ years, now those distributions will be accelerated to liquidate the account in just ten years. Depending on the financial situation of the beneficiary, this could result in even more tax paid.

For those who are charitably inclined, and already planning to leave some assets to charity through their estate plan, there are a few tax-smart things to consider.

· Consider naming a charity as a beneficiary of your IRA, rather than as a bequest in your will or trust as a portion of your overall estate. This will allow other assets, that are more tax advantageous, to pass to your heirs and the IRA to benefit your community.

· If your estate exceeds the $11.18 million threshold for federal estate tax, naming a charity as the beneficiary of your IRA may offset the estate tax owed.

· If this all sounds good, but you are concerned about disinheriting your heirs by naming charity as the beneficiary of your IRA, you may consider purchasing life insurance to replace the value of the IRA. You may use distributions from your IRA during life to pay premiums. At death, the IRA will benefit your community and the life insurance will benefit your heirs.

If you have made the decision to give to charity during or beyond your lifetime, you should consult with your financial, estate and/or tax advisors to explore the potential benefits of using your IRA or other qualified retirement assets to achieve your charitable goals.