New tax break for seniors, charitable gift annuity from IRA

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As if our arcane, convoluted tax code wasn’t complicated enough, Congress is constantly making changes.

The Retirement Tax Break That Will Pay You an Annual Income

Retirees can now earn money for life by giving some of their IRA savings to charity

By Ashlea Ebeling, The Wall Street Journal, June 14, 2023

…
As of Jan. 1, retirees age 70½ or older are now able to donate up to $50,000 from their IRAs to fund gift annuities. …

The gifts count toward required minimum distributions, the annual withdrawals older Americans must make from retirement accounts. Normally these withdrawals are taxed as income, but when directed to charity they are tax-free. In exchange for the gift, the charity agrees to make fixed annual payments to the giver, much like a traditional annuity purchased from an insurance company. Any money left over when the donor dies goes to the charity…

The annuity payout is taxed as ordinary income…

IRA-funded gift annuities come with special rules. A donor can make the gift in one tax year only. That could be one $50,000 gift, or several smaller gifts up to the $50,000 limit. The $50,000 amount counts toward a separate $100,000 limit per taxpayer for outright gifts to charity made with IRA dollars. The annuity can make payments to the donor or to the donor and spouse only. Payments have to start within a year of funding it…[end quote]

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This is especially useful for seniors whose MRD would push them into a higher tax bracket or even into IRMAA for Medicare payments.

Wendy

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Meh.

The significantly tiny amount of people that might benefit from this would seem to make it pointless.

You can’t gift more than $50k - and that is included in the already existing max gift of 100k.

If you are doing this to reduce the risk of higher income due to RMD rules - great, you have now taken the problem and simply made it WORSE for all future years as you now have additional annuity income that is a HIGHER PERCENTAGE than what your RMD would have been on that same $50k. Next year you will have a RMD of that same $50k (or whatever amount - likely higher due to RMD rules) and 5.9% of that $50k (or higher) in additional income.

Can someone give me a situation where this would make sense to do? The only scenario that makes any sense at all is a situation where someone doesn’t have much of an IRA at all and wants most of it to go to charity while still drawing an income off the assets. 5.9% of $50k is not going to do a lot to help fund a retirement.

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The comments by WSJ readers to that article were hilarious. It appears lots of well-to-do people won’t give to “woke” colleges.

But they’re fine with a $30 MM/year health insurance CEO between them and their doctor. {LOL}

intercst

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