SECURE 2.0 Act – Section 307. One-time Election for Qualified Charitable Distribution to Split-interest Entity; Increase in Qualified Charitable Distribution Limitation

SECURE 2.0 Act – Section 307. One-time Election for Qualified Charitable Distribution to Split-interest Entity; Increase in Qualified Charitable Distribution Limitation

The SECURE 2.0 Act (SECURE 2.0) introduces a new provision allowing IRA holders aged 70-½ or older to make a one-time qualified charitable distribution to a split-interest entity. This change provides an opportunity for IRA holders to make charitable contributions while retaining lifetime income interests in the underlying funds.

IRA holders who are at least age 70-1/2 may make qualified charitable distributions (QCDs) of up to $100,000 per year. Prior to the SECURE Act 2.0, this annual contribution limit had not been indexed for inflation. The SECURE Act 2.0 provides that this annual contribution limit is indexed for inflation starting in 2023.

SECURE 2.0 also introduced a new one-time opportunity for IRA holders to make QCDs to split-interest entities including charitable remainder annuity trusts (CRATs), charitable remainder trusts (CRUTs), and charitable gift annuities.

Different requirements apply with respect to each of these entities; however, all include the following common requirements:

• the split-interest entity must be funded exclusively by QCDs;
• the aggregate amount of allowable funding is $50,000;
• the contribution must be otherwise deductible under IRC section 170;
• any income interest in the split-interest entity must be only for the taxpayer and/or their spouse;
• the income interest must not be assignable; and
• distributions from the split-interest trust must be treated as ordinary income in the hands of the beneficiary taxpayer/spouse (reflecting no return of principal).

Split-interest trusts offer a unique way for charitably minded individuals to make charitable contributions while retaining a lifetime interest in the income generated by the donated funds. The expansion of SECURE 2.0 to allow QCDs to fund these trusts may make these vehicles even more attractive to IRA holders.  Be sure to discuss all tax ramifications with your Schneider Downs tax team to see if this type of QCD is beneficial to you.

If you have any questions about SECURE 2.0, please contact a member of the Schneider Downs Retirement Solutions team at [email protected].

This article is part of a series highlighting the impact of the SECURE 2.0 on retirement plan sponsors, participants and retirees. You can view our full catalog of SECURE 2.0 articles here or download our comprehensive SECURE 2.0 eBook here.

About SECURE 2.0

SECURE 2.0 was signed into law by President Biden on Dec. 29, 2022, as part of a $1.7 trillion omnibus spending bill.

This massive piece of legislation builds on the foundation that was laid by the 2019 Setting Every Community Up for Retirement Enhancement (SECURE) Act to further improve upon the success of the private employer-based retirement system by making it easier for businesses to offer retirement plans and for individuals to save for retirement.

The full text of SECURE 2.0, including provisions that affect pension and cash balance plans, may be found on pages 2,046-2,404 of the omnibus Consolidated Appropriations Act of 2023.

About Schneider Downs Retirement Solutions

Schneider Downs Retirement Solutions has experience in all facets of qualified and non-qualified plan delivery, which allows us to be flexible to the needs and direction of our clients. Our specialized team of advisers and consultants provide objective advice and expertise to help plan sponsors govern their retirement plans appropriately, mitigate risk, improve participant outcomes and support efficient and compliant plan operations. 

Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services. Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice. Registration with the SEC does not imply any level of skill or training.