RMD Changes – What You Should Know

Retirement accounts can be the single largest source of accrued wealth for many alumni. As good fundraisers, it is important to know how new regulations regarding required minimum distributions (RMDs) impact the guidance on gifts from an IRA. The planned giving experts at Stelter and the money professionals at CNBC financial recently weighed in on what you need to know.

What are the new regulations?

The Setting Every Community Up for Retirement Enhancement (SECURE) Act went into effect on Jan. 1, 2020. The most significant changes to retirement security since the Pension Protection Act of 2006, this legislation increases the age you start making mandated annual withdrawals from your retirement account from 70½ to 72. Also, how you calculate your retirement amounts will change with updated life expectancy tables proposed by the IRS for 2021.

“The age change is a small thing, but helpful,” certified financial planner Mark Wilson, president of MILE Wealth Management in Irvine, California, told CNBC’s Sarah O’Brien. “Using longer life expectancy calculations would make the minimum amount you have to take a little smaller.”

While the SECURE Act increases the age retirees must begin taking taxable withdrawals from their retirement savings, it does not increase the age an IRA owner can take a qualified charitable distribution or QCD. That age remains at 70½ years.

“I anticipate that this may cause some confusion among your donors,” writes Stelter’s Senior Gift Planning Consultant Lynn Gaumer on the company’s blog Stelter Insights.

Testamentary Life Income Gifts

Gaumer calls the new law a “win for the nonprofit community” because it increases interest in Testamentary Life Income Gifts.

The new law modifies “the stretch” IRA provisions, she writes. Under the previous law, when an IRA owner passed away, the IRA beneficiary could “stretch” distributions over their lifetime. This preserves an account’s tax-deferred status and allows its continued use by future beneficiaries.

Under the new law, spouses are still allowed to stretch payments over their lifetimes, but non-spousal beneficiaries have to withdraw any amount left in the IRA within ten years.

“Donors may not want their non-spousal beneficiaries to receive their entire IRA proceeds within ten years,” Gaumer writes. “A testamentary charitable remainder trust (CRT) or a testamentary charitable gift annuity (CGA) may be a solution. The IRA owner can name a CRT or a CGA as a beneficiary. The IRA proceeds will then be used to fund a testamentary CRT or CGA.”

Gaumer says university gift officers should review their list of donors and identify those who may be interested in stretching their IRA distributions using a testamentary charitable remainder trust or a testamentary charitable gift annuity.

“Reach out to them and begin the conversation.”

To read Stelter’s entire overview, including more information on strategies, you can visit their blog here.