How did the SECURE Act change charitable giving?

The new law makes changes to giving, but keeps some things the same. Read on to learn how you can benefit.

by Robert Heuermann, Executive Director

The Setting Every Community Up for Retirement Enhancement (SECURE) Act was enacted Jan. 1, 2020. This legislation marks the most significant changes to retirement security since the Pension Protection Act of 2006.

What changed

1. You can contribute to your IRA longer.

You can now contribute to your IRA past the age of 70½, allowing you more time to save.

2. The required minimum distribution (RMD) age changed.

The SECURE Act changed the age at which you must start taking RMDs from your retirement account from 70½ to 72. This change gives your account additional time to grow. Notably, for those born BEFORE July 1, 1949 the previous rules apply. Donors who turned 70½ in 2019 or earlier will have to continue to take required minimum distributions.

3. IRA rules changed for most non-spousal beneficiaries.

If you name someone other than your spouse as the beneficiary of your IRA, they now have to withdraw the entire amount within 10 years (previously, they could stretch this over their lifetimes). The law takes effect for deaths of IRA owners after Dec. 31, 2019, so IRAs inherited before then still benefit from prior law.

The previous rules can still apply, depending on your birthday.

What stayed the same

1. You can still withdraw funds starting at age 59½ with no penalty.

You can still access your retirement savings prior to 59½, but there is a 10 percent early penalty withdrawal. The new law allows for an aggregate amount of $5,000 to be distributed from a retirement plan without a 10 percent penalty in the event of a qualified birth or adoption.

2. Spouses can still take distributions throughout their lifetimes.

When you name your spouse as the beneficiary of your IRA, they can continue to take distributions from the account throughout their lifetime.

3. IRA owners age 70½ and older can still make qualified charitable distributions (QCDs) to qualified charities.

What this means for your charitable giving if you are 70½ or older

Donors between ages 70½ and 72 don’t have to wait until age 72 to make QCDs. By starting at 70½, you can make a difference today, while receiving benefits in return.

These benefits include:

 – the gift not counting as income, which means you benefit whether or not you itemize their taxes.

 – the opportunity to leverage the most highly-taxed assets. When IRAs are passed to loved ones, distributions from these accounts are subject to income taxes at the beneficiary’s ordinary income tax rate, which can be as high as 37 percent. Rather than leaving these heavily taxed assets to family, encourage your donors to consider giving from these accounts now and let the value of other assets grow, then eventually pass to loved ones.

If you have questions about how the SECURE Act will impact your retirement plans, I encourage you to make an appointment with your Catholic United Financial Sales Representative. They can review your plans (including your beneficiary designation) and ensure that your wishes are documented.

This information is not intended to be a substitute for specific individualized tax advice. Discuss your specific tax issues with a qualified tax adviser to see if these strategies make sense for your unique situation.