New Tax Break by Giving Some of Your IRA to Charity-Will Also Pay You Fixed Annual Income

As of Jan. 1, 2023, retirees who are 70½ or older will be able to donate up to a maximum of $50,000 from their IRAs to fund gift annuities. In exchange, the charity will provide you with lifetime income.

While charities have been offering gift annuities for years, the donations weren’t able to be made directly from retirement accounts. The gifts count toward required minimum distributions, the annual withdrawals older Americans must make from retirement accounts.

Normally these withdrawals are taxed as income, but when directed to charity, they are tax-free. In exchange for the gift, the charity agrees to make fixed annual payments to the giver, much like a traditional annuity purchased from an insurance company.

Any money left over when the donor passes away goes to the charity.

The fixed annual payments start at a minimum of 5% and can reach as high as 9.7% for someone in their 90’s.

IRA-funded gift annuities come with special rules.

• A donor can make the gift election in one tax year only.

• • That could be one $50,000 gift, or several smaller gifts to various charities up to the $50,000 limit.
  • The $50,000 amount counts toward a separate $100,000 limit per taxpayer for outright gifts to charity made with IRA dollars.
  • The annuity can only make payments to the donor or to the donor and spouse.
  • Payments must start within a year of funding the annuity.
  • The payments are taxed as ordinary income.

Please feel free to reach out to us with any questions.