This is the fourth in a four-part blog series on the Setting Every Community Up for Retirement Enhancement Act (SECURE Act). The first three installments can be read here.
An area of estate planning that is impacted by the changes in the recently enacted SECURE Act is the use of qualified charitable distributions (“QCDs”). A QCD is a distribution from an IRA (up to $100,000 per year, per individual) made directly to an eligible charity.
Those 70½ and older may continue to make QCDs to public charities. A QCD will count toward an individual’s RMD requirement and generally will not trigger an income tax on distribution. While the age to begin taking RMDs was raised to 72 under the SECURE Act, the age to make QCDs remains unchanged at 70½. Because QCDs are not included in income, they are typically more tax-efficient than taking a charitable deduction.
One important change impacting QCDs brought about by the SECURE Act is that contributions to a traditional IRA after age 70½ will reduce the amount of eligible QCDs, even if the QCDs occur years after the contributions were made to the traditional IRA. If not planned properly, this reduction in QCDs due to traditional IRA contributions after age 70½ could inadvertently cause taxable income. Thus, if you anticipate making QCDs, you may consider contributing to a Roth IRA after age 70½, which will not result in a reduction of the QCD.
In addition to the planning options mentioned above, there are additional planning strategies that may be used to reduce the overall tax burden if you decide to direct your retirement account to a trust for your beneficiaries.
This article was written by Greensfelder Trusts & Estates Practice Group