QCD Limitation Starts Inflation-Adjusting in 2024 (Secure 2.0)

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On December 29, 2022, Biden signed H.R.2617, the Consolidated Appropriations Act of 2023, into law. Hidden within this appropriations bill are several retirement provisions under the section named “Division T – The SECURE 2.0 Act of 2022” (PDF Page 817).

In this series, I am reviewing the major changes created by this act. This article is about “SEC. 307. ONE-TIME ELECTION FOR QUALIFIED CHARITABLE DISTRIBUTION TO SPLIT-INTEREST ENTITY; INCREASE IN QUALIFIED CHARITABLE DISTRIBUTION LIMITATION” (starts on PDF Pages 885-887).

In December 2015, Congress passed a law allowing you to give up to $100,000 to charity directly from your individual retirement account (IRA) when you are over 70½ years old without counting the distribution as taxable income. This type of charitable gift is called a Qualified Charitable Distribution (QCD).

Until now, the $100,000 limitation has sat static without inflation-adjustment. However, the SECURE 2.0 Act of 2022 changes this, setting the $100,000 limitation to inflation-adjust by $1,000 increments starting in “any taxable year beginning after 2023.”

This amendment also adds new QCD rules for a one-time gift of up to $50,000 to split-interest entities, such as a charitable remainder trust like a CRAT or CRUT.

As the new code states, you can only make this election if you’ve never done it before (“an election is not in effect under this subparagraph for a preceding taxable year,”), the amount you are doing “does not exceed $50,000,” and the split-interest entity is “funded exclusively by qualified charitable distributions.” This makes the split-interest QCD gift election only available for one gift per taxpayer. Because charitable remainder trusts are rare and then these limitations make the QCD rule only usable once, I won’t spend longer talking about this amendment. If you’re interested in utilizing this new rule, the best people to talk to are the estate attorney and tax preparer for your trust.

The new Section 408(d)(8) now reads:

(8) Distributions for charitable purposes
(A) In general

So much of the aggregate amount of qualified charitable distributions with respect to a taxpayer made during any taxable year which does not exceed $100,000 shall not be includible in gross income of such taxpayer for such taxable year. The amount of distributions not includible in gross income by reason of the preceding sentence for a taxable year (determined without regard to this sentence) shall be reduced (but not below zero) by an amount equal to the excess of—
(i) the aggregate amount of deductions allowed to the taxpayer under section 219 for all taxable years ending on or after the date the taxpayer attains age 70½, over
(ii) the aggregate amount of reductions under this sentence for all taxable years preceding the current taxable year.

(F) One-time election for qualified charitable distribution to split-interest entity

(G) Inflation adjustment
(i) In general

In the case of any taxable year beginning after 2023, each of the dollar amounts in subparagraphs (A) and (F) shall be increased by an amount equal to—
(I) such dollar amount, multiplied by
(II) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting “calendar year 2022” for “calendar year 2016” in subparagraph (A)(ii) thereof.
(ii) Rounding

If any dollar amount increased under clause (i) is not a multiple of $1,000, such dollar amount shall be rounded to the nearest multiple of $1,000.

Photo by Caroline Feelgood on Unsplash. Image has been cropped.

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Megan Russell has worked with Marotta Wealth Management most of her life. She loves to find ways to make the complexities of financial planning accessible to everyone. She is the author of over 800 financial articles and is known for her expertise on tax planning.