SECURE 2.0's $50,000 QCD to CRUT or Charitable Annuity

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Phil DeMuth
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SECURE 2.0's $50,000 QCD to CRUT or Charitable Annuity

Post by Phil DeMuth »

SECURE 2.0 allows IRA owners over 70.5 to make a one-time QCD of $50,000 to a CRUT, CRAT, or a Charitable Annuity.

This does not strike me as a tempting offer. $50,000 is too small an amount to set up and administer a Charitable Remainder Annuity or Unitrust efficiently.

Most charitable annuities split the donation 50/50 with the donor, which also sounds like a bad deal here. If they wanted an annuity, I think most people would be better off taking $50,000 out of the IRA, paying the taxes, and buying an SPIA from a commercial provider. What would it pay -- a couple of thousand dollars a year?

I'm not seeing the good use case here. Am I thinking about this wrong? Has anyone tried this and found it useful?
prd1982
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Re: SECURE 2.0's $50,000 QCD to CRUT or Charitable Annuity

Post by prd1982 »

To me, the real comparison would be to give 25k as a QCD, pay 5k as taxes, and invest 20k as an annuity.

Personally, I think this procedure is aimed at people who want to say they avoided paying taxes on 50k, without looking at the big picture.
bsteiner
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Re: SECURE 2.0's $50,000 QCD to CRUT or Charitable Annuity

Post by bsteiner »

If you want an annuity you can buy one in your IRA.
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arcticpineapplecorp.
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Re: SECURE 2.0's $50,000 QCD to CRUT or Charitable Annuity

Post by arcticpineapplecorp. »

bsteiner wrote: Sat Jun 10, 2023 8:18 pm If you want an annuity you can buy one in your IRA.
which I'm sure you know is generally not advisable because there's no double tax deferral for buying annuities in an IRA.

but are you referring to buying a QLAC in an IRA which has a higher limit under secure act 2.0:
Expansion of QLAC Exemption (Effective Immediately)

SECURE 2.0 expands the RMD exemption for Qualified Longevity Annuity Contracts (QLACs) by (i) eliminating the requirement that the QLAC premium not exceed 25% of the individual’s account or IRA balance, (ii) increasing the QLAC dollar limit from US$125,000 to US$200,000 (indexed to the cost of living beginning in 2024), and (iii) permitting the QLAC to include a provision that allows the individual to rescind the contract within 90 days. These changes became effective on 29 December 2022, and the 90-day “free-look” rescission rule is retroactive to 2 July 2014.

source: https://www.klgates.com/SECURE-20-Act-L ... -1-31-2023
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Topic Author
Phil DeMuth
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Re: SECURE 2.0's $50,000 QCD to CRUT or Charitable Annuity

Post by Phil DeMuth »

Very helpful comments, thank you all.

IMHO, the point of SECURE 1.0 and 2.0 was to facilitate selling annuities inside retirement plans. In theory, a person who wanted an annuity would be better off using pre-tax dollars to up to $200,000 in a QLAC rather than cashing out the same dollars and buying a SPIA in the aftermarket.

However, SECURE 1.0 is quite explicit that high fees are no obstacle to including an annuity on the retirement plan's menu, which makes me wonder about the expenses of the products promoted inside these plans and as a result the wisdom of the entire transaction.

In any event, no one so far has come up with a great way to use the $50,000 QCD to a trust. Even if Congress raised the allowed amount of the one-time QCD to $100,000 or even $200,000 I don't see how that would change things. The CRUT and the CRAT would still be too expensive to run at these dollar amounts. If my motive was to give to charity, I would be better off sending a QCD directly to the end charity than using this complicated apparatus.
Topic Author
Phil DeMuth
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Re: SECURE 2.0's $50,000 QCD to CRUT or Charitable Annuity

Post by Phil DeMuth »

A Boglehead reminded me that Kitces took this up in one of his columns:

https://www.kitces.com/blog/secure-act- ... oan-match/

..which concurs that the CRUT/CRAT ideas are non-starters.

The other option, a charitable annuity, has to pay 5%, or $2,500 annually, on a max $50,000 contribution.

Here is another idea: take out an extra $2,500 from your IRA every year, and name your favorite charity as an IRA beneficiary. You could fund and open a separate $50,000 IRA just for this purpose.

Charity annuities are irrevocable. You had better love the charity since you can't change your mind later. And unlike commercial annuities, no state guaranty association stands behind them. If your charity can't make the payments for any reason, it's too bad for you.
tj
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Re: SECURE 2.0's $50,000 QCD to CRUT or Charitable Annuity

Post by tj »

Phil DeMuth wrote: Mon Jun 12, 2023 11:08 am A Boglehead reminded me that Kitces took this up in one of his columns:

https://www.kitces.com/blog/secure-act- ... oan-match/

..which concurs that the CRUT/CRAT ideas are non-starters.

The other option, a charitable annuity, has to pay 5%, or $2,500 annually, on a max $50,000 contribution.

Here is another idea: take out an extra $2,500 from your IRA every year, and name your favorite charity as an IRA beneficiary. You could fund and open a separate $50,000 IRA just for this purpose.

Charity annuities are irrevocable. You had better love the charity since you can't change your mind later. And unlike commercial annuities, no state guaranty association stands behind them. If your charity can't make the payments for any reason, it's too bad for you.
Sending $2,500 to charity every year would also be a irrevocable departure of your funds, at least for each installment, with the annuity option, you'd receive some of that contribution back.
Joey Jo Jo Jr
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Re: SECURE 2.0's $50,000 QCD to CRUT or Charitable Annuity

Post by Joey Jo Jo Jr »

If you had some highly appreciated assets you wanted to go to charity anyway, you could donate that at the same time as your $50,000 of RMDs.

Maybe take advantage of the reduced income and additional charitable deduction on the stock by converting some qualified funds to Roth.

Or just wait for SECURE 3.0 to allow a transfer to a DAF. Congress seems to like to spread out the tax gimmicks.
Topic Author
Phil DeMuth
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Re: SECURE 2.0's $50,000 QCD to CRUT or Charitable Annuity

Post by Phil DeMuth »

tj --

Sorry to be unclear!

I meant that you would take an extra $2,500 from your IRA every year as your own "annuity" and leave the remainder to charity upon your departure, and that this might be better than going the "charitable annuity" route.
prd1982
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Re: SECURE 2.0's $50,000 QCD to CRUT or Charitable Annuity

Post by prd1982 »

Joey Jo Jo Jr wrote: Mon Jun 12, 2023 12:25 pm If you had some highly appreciated assets you wanted to go to charity anyway, you could donate that at the same time as your $50,000 of RMDs.

Maybe take advantage of the reduced income and additional charitable deduction on the stock by converting some qualified funds to Roth.

Or just wait for SECURE 3.0 to allow a transfer to a DAF. Congress seems to like to spread out the tax gimmicks.
I don’t think this is a good idea. It sounds like you are suggesting that they take their RMD for living expenses and give $50k of highly appreciated stock. If they need $50k for living expenses plus want to give $50k to charity, they should give a $50k QCD and just sell the highly appreciated shares for living expenses. The stock will be taxed at a lower tax rate, plus some of it will be tax free.

I’m sure there are times when not using a QCD is the most tax efficient, but I don’t know of what it would be.
Joey Jo Jo Jr
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Re: SECURE 2.0's $50,000 QCD to CRUT or Charitable Annuity

Post by Joey Jo Jo Jr »

To clarify, my suggestion was that one could make the $50,000 QCD to the CRT at the same time that they donated appropriated assets, since the $50,000 by itself would not warrant setting up a CRT as the OP pointed out.
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