Article
Impacts of SECURE 2.0 and qualified charitable distributions on fundraising
May 22, 2023 · Authored by Patty Mayer, Cherie Williams
The updated Setting Every Community up for Retirement Enhancement (SECURE 2.0) Act of 2022 made some important changes to the initial SECURE Act passed in 2019. Among these are expansions on retirement plan options and changes to rules surrounding qualified charitable distributions.
Not-for-profit organizations need to understand how these changes could be leveraged to support fundraising and development efforts.
Qualified charitable distributions
A qualified charitable distribution is a tax-efficient way for taxpayers 70 1/two years and older to donate funds from their individual retirement account (IRA) to a qualified charitable organization.
Previous qualified charitable distribution guidelines
Under prior qualified charitable distribution rules, an individual could directly transfer up to $100,000 per year from their IRA to a qualified charity without incurring taxes on the distribution. The donated funds count towards the individual’s required minimum distribution (RMD) for the year. For married couples, if both spouses are 70 1/two or older and have IRAs, each spouse can exclude up to $100,000 for a total of $200,000 per year.
Qualified distribution guidelines for not-for-profits
To be eligible for a qualified charitable distribution, the charity must be a qualified 501(c)(3) organization, and the distribution must be made directly from the IRA custodian to the charity. The individual can’t receive any benefit from the donation. The RMD isn’t recognized as income to the donor, and it doesn’t qualify as a charitable contribution deduction.
Although a charitable deduction isn’t available, the donor must get a written acknowledgement letter of their contribution from the charitable organization before filing their return. The acknowledgement must state the date and amount of the contribution and indicate whether the donor received anything of value in return.
A qualified 501(c)(3) organization includes public charities such as churches, educational, medical, and governmental organizations. Qualified charitable organizations exclude private foundations, use of donor advised funds, and charities whose exempt purpose is supporting other exempt organizations.
Before the SECURE 2.0 act, a donor couldn’t make a qualified charitable distribution to a donor-advised fund, private foundation, or any supporting organizations, even though these are categorized as charities. Donors should check before making a gift to be certain the organization is qualified to accept qualified charitable distributions.
Related sections
Charitable trust planning: share your wealth and defer capital gains
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.