New Tax Law Includes Changes to Retirement Plans, IRA Rollovers

On Dec. 20, 2019, the President signed into law a $1.4 trillion FY 2020 appropriations bill that also included the Setting Every Community Up for Retirement Enhancement (SECURE) Act.

The SECURE Act contains a number of provisions affecting retirement plans and related issues, and it is anticipated that the SECURE Act will impact nonprofits and charitable giving. 

Increasing the Required Mandatory Distribution Age

For those organizations that receive charitable donations from individual retirement accounts (IRA) through the IRA Charitable Rollover provision, they likely will see an impact due to the SECURE Act’s change to the Required Mandatory Distribution (RMD) age threshold.

Previously, the IRA Charitable Rollover allowed individuals age 70½ and older to make direct transfers of up to $100,000 per year (and up to $200,000 per year for married couples) from their IRAs to qualified charities without having to count the transfers as income for federal tax purposes.

The SECURE Act raises the RMD age threshold from 70½ to 72. Individuals often leverage the IRA Charitable Rollover to give their RMD as a gift to charities and avoid tax penalties.

Under the new law, donors may curtail their IRA Charitable Rollover gifts until they reach the age of 72 when they are required to make distributions under the new law. If an organization is anticipating and/or cultivating IRA gifts from individuals between the ages of 70½ and 72, they should be aware of the potential impact of the increased age threshold.

There initially was a question as to whether the SECURE Act would correspondingly raise the Qualified Charitable Distribution (QCD) age from 70½ to 72. This would mean that individuals could not leverage the tax incentive of the IRA Charitable Rollover until they reached the age 72). However, it appears that the SECURE Act preserves the 70½ age threshold for QCD’s.

Mandating Withdrawal of an Inherited Retirement Account Over 10 Years 

The SECURE Act implements a new rule that requires certain beneficiaries to withdraw their entire inherited retirement account over 10 years, meaning that they can no longer stretch out the withdrawals over their life expectancy. 

With this new provision, retirement account owners may reconsider their strategies and choose to give their IRA to charity (and perhaps purchase life insurance for their children and/or beneficiaries instead) or create a charitable remainder trust to minimize the tax implications of the new 10-year withdrawal provision.

The changes resulting from the SECURE Act provide an opportunity for fundraising professionals and their organizations to discuss giving strategies with their donors, particularly those donors approaching the ages of 70 ½ and 72.

AFP will continue to analyze the implementation and impact of the SECURE Act and will provide additional guidance accordingly.

For more information, read this article from Forbes.