The “Legacy IRA” has finally arrived

Effective January 1, 2023, if you are age 70-1/2 or older, you can distribute up to $50,000 from your traditional IRA directly to a charitable remainder trust or gift annuity. The distribution is excluded from your income, but if you’re 73 or older, it still counts toward your required minimum distribution.

The “Legacy IRA” was part of the “SAFE 2.0” Act, included in the appropriations measure passed at the end of the last Congress and signed into law on December 29th. This legislation is the result of persistent lobbying efforts by others. by key players in the nonprofit sector for over ten years.

The final product is significantly scaled down from previous versions, but the gift annuity component will provide excellent opportunities for some, and the charitable remainder trust component can be seen as a foot in the door.


The new legislation builds on the so-called “charitable IRA rollover,” itself the product of more than a decade of lobbying efforts. Section 408(d)(8) of the Internal Revenue Code was first enacted in 2006 as a temporary measure, extended several times, and finally made permanent in 2015.

This provision allows IRA participants age 70 1/2 and older to make “qualified charitable distributions” (QCDs) of up to $100,000 per year from one or more traditional IRAs directly to charity. Again, these are excluded from income, but if the participant misses the required start date, they may be credited against their minimum required distributions.

As a practical matter, it’s like an “above the line” deduction, whether you itemize or not. If you specify, QCDs will not count against your percentage limitations (except indirectly by reducing your adjusted gross income).

And for taxpayers who might otherwise be subject to the 3.8 percent tax on net investment income, or whose Social Security benefits might otherwise be taxed, the exclusion can help keep their adjusted gross income below the applicable thresholds.

Lifetime income gifts

The “legacy IRA” provisions extend this concept to lump sum distributions, which the legislation somewhat imprecisely refers to as “distributed interest entities.” The quoted phrase is defined in the legislation to include both charitable remainder trusts, which are indeed treated elsewhere in the tax code as “distributed interest entities,” and charitable gift annuities, which are contractual arrangements with the issuing charity.

When a version of this legislation was first introduced in 2009, the idea was to allow an IRA under age 59 1/2 to distribute up to $400,000 annually in one or more of these arrangements. Those ambitions were scaled back in later versions of the legislation, none of which made it to the floor of either chamber.

Practical considerations

As finally enacted, the legislation allowed only “one-and-done” distributions, up to $50,000, either to a charitable remainder trust that holds no other assets, or as the sole funding source for a gift annuity to be initiated under one. Funding year. Only the IRA participant and/or his or her spouse can designate a non-charitable beneficiary.

It is reasonably clear that any amount contributed to the Life Income Plan must be counted against the $100,000 limit for QCDs in the year the transfer is made. Note, however, that the wording of the statute appears to allow spouses to each contribute up to $50,000 in QCD in a single gift annuity contract or charitable remainder trust, payable jointly or to either or a survivor.

The law says that interest in earnings must be “non-transferable”. Although it is not entirely clear that this is intended to exclude even an assignment to the remainder or giving to the charity itself, there is an informal history that suggests this.

Payments from a QCD-sponsored gift annuity must be at least five percent, and all distributions will be taxed as ordinary income. As it happens, the ACGA’s recommended rates for annuitants over age 70 are already higher than five percent, even under two life tables, based on the age of the younger, non-participating spouse.

Section 664(d) already requires that the charitable remainder trust’s return be at least five percent. Again, the law requires that the entire payment be taxed as ordinary income.

Of course, distributions from a traditional IRA would be taxed as ordinary income anyway.

Although a gift annuity must be payable during the annuitant’s lifetime, a charitable remainder trust can be created that terminates after a specified term, not to exceed 20 years, or may include a “qualified event” that terminates the trust. Upon the occurrence of some declared event, such as divorce or remarriage.

The unitrust form offers other flexibility, namely the “net income exception,” which allows the trust to distribute a specified unit trust percentage amount or net fiduciary accounting income, which, depending on how the trust is conducted, can be quite low. A net income trust may contain a “make-up” feature and/or a “rollover” feature that will allow the trust to distribute accumulations in the future upon the sale of an appreciated asset and/or the occurrence of a triggering event.

However, as a practical matter, in most cases it will not be possible to fund and administer a charitable remainder trust containing only $50,000 – or even $100,000 if both spouses contribute.

But there is a significant potential market for “legacy IRA” gift annuities, even at the $50,000 price point. As noted above, the distribution provides what amounts to an above-the-line deduction for the charitable remainder, and although the payout will be entirely ordinary income, the annuity contract will be funded entirely with tax-free ordinary income.

Generic selectors
Exact matches only
Search in title
Search in content
Post Type Selectors