January 31, 2023

In late 2022, Congress passed a piece of legislation that makes significant changes to rules for retirement assets, including Required Minimum Distributions and Qualified Charitable Distributions. This legislation, called SECURE 2.0, addresses some of the same areas as its predecessor, the SECURE Act of 2020. We sat down with Mariah Brook, Director of Gift Planning at St. Paul & Minnesota Foundation, to learn more about what this might mean for you.

What is a Required Minimum Distribution (RMD)?

A Required Minimum Distribution (RMD) is the minimum amount an individual must withdraw from their IRA each year. Individuals must start taking withdrawals from their IRA when they reach age 73; this age will increase to 75 starting in 2033.

Some individuals have other reliable income streams and don’t need the required amount from their IRA and don’t want that amount to increase their taxable income. One popular strategy for avoiding taking an RMD is to direct the sum to a charity in the form of a Qualified Charitable Distribution (QCD).

What is a Qualified Charitable Distribution (QCD)?

A Qualified Charitable Distribution is when an individual, who is over 70 ½, directs up to $100,000 from their IRA to a qualified charitable organization. QCDs are especially advantageous for individuals who have a Required Minimum Distribution (RMD), but do not need all or a portion of the required amount. Instead of accepting the distribution as income, the funds are delivered tax-free to a charity, satisfying an individual’s distribution requirement, and maximizing their philanthropic impact. There are numerous benefits to this giving strategy, including lowering your adjusted gross income, satisfying your required minimum distribution, and making a meaningful gift to one or more charities that you care about.

Many things stayed the same in the SECURE Act 2.0, including:

• QCDs can only be created from an IRA, not a 401K or a 403B; however, individuals can convert those types of accounts into IRAs in consultation with their advisors.
• The maximum amount for a QCD is still $100,000 per person, but this number will be indexed for inflation in future years.
• Individuals can begin making QCDs at age 70 ½.

Here’s what has changed in the new legislation:

• The starting age for RMD. Previously, the RMD age was 72 years old, but now it is 73 years old for those born between 1951-1959 and age 75 for those born in 1960 and later.
• A QCD can now be used to fund a Charitable Gift Annuity (CGA) or a Charitable Remainder Trust (CRT). A CGA is a gift given to a nonprofit in return for a fixed stream of income and a partial tax deduction in the year of the gift. When the annuitants pass away, the remainder goes to charity. A CRT is similar but typically has a higher minimum to be established. Individuals are limited to establishing one CGA or CRT per lifetime up to $50K.

Although the RMD for IRAs has risen to 73 years old, individuals are still able to start withdrawals from their IRAs starting at 70 ½ years old. Brook encourages people to consult their advisors to see if making QCDs before an RMD is required is a good strategy for them.

“Every year, the IRA balance will likely grow larger, as will the required minimum distribution,” said Brook. “If you’re anticipating that you won’t need the money at that time, starting your distributions early can decrease the balance of the fund, which will, in time, decrease the RMD, lowering your taxable income in the long run.”

Are you interested in initiating a QCD to People Incorporated?

You can start by talking with your financial advisor about your options. You’ll need the following information to get started:

• Our legal name: People Incorporated Mental Health Services
• Our federal tax ID number: 41-0962296
• Our legal mailing address: 3000 Ames Crossing Rd, Suite 600, Eagan, MN 55121

If you’d like to see an illustration of how this could work for you from a gift officer, contact Rachel Hickok, Director of Development, at [email protected].org or 651-288-3514.