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How Does the Secure Act 2.0 Affect Charitable Remainder Trusts

How Does the Secure Act 2.0 Affect Charitable Remainder Trusts

July 19, 2023

The dialogue around saving for retirement is shifting, and the SECURE Act 2.0 is part and parcel of that major change. It has altered the way that individuals and businesses think about saving for retirement, but it has also changed the rules for charitable remainder trusts. New rules have many rethinking whether Charitable Remainder Trusts (CRTs) are the right move for them. 

If you have been thinking about how you can leverage the SECURE Act. 2.0 with a charitable remainder trust, here’s what you need to know. 

About the SECURE Act 2.0

The original Setting Every Community Up for Retirement Enhancement (SECURE) Act was passed back in 2019, but 2022 brought new updates to the plan. The goal was to facilitate contributions to more retirement plans and provide better access to the funds that were designated toward this end. 

The new SECURE Act 2.0 has altered the way we think about distribution and accumulation. Take a look at some of the key ways SECURE 2.0 will impact your retirement savings: 

  • Required Minimum Distribution Age: The RMD will rise to age 73 this year and will be on the rise for years to come. Ten years from now, RMDs might start at a much higher age of 75. Reduced penalties for missing the RMD drop from 50 percent to 25 percent. 
  • Access to Funds: Funds are more accessible now for plan participants. From 2024 and into the future, employees can take a maximum of $1,000 from a retirement account for any type of emergency. More funds can be withdrawn for the treatment of a terminal illness or in the case of domestic violence. 
  • Catch-up Contributions: Starting in 2025, older individuals ages 60 to 63 may make catch-up contributions up to $10,000. 
  • Automatic Enrollment: Also set to begin in 2025, employees will have to opt-out of their enrollment in retirement plans or they will be automatically enrolled by employers. 
  • Student Loan Matching: In 2024, employers can make retirement contributions matching student loan payments. 
  • Conversion of 529 to Roth: One important change is that 529 college savings plans can now be converted to Roth IRAs for students who do not tap into all of these resources for their higher education.

However, there are more changing rules to be aware of as SECURE 2.0 begins to roll out changes to the way we think about saving for retirement. It can also impact charitable remainder trusts and how they impact the finances of your beneficiaries.  

How SECURE 2.0 Affects Charitable Remainder Trusts

Charitable remainder trusts are an excellent way to leave a legacy for your family while still making the most of your wealth to contribute to charity. The SECURE Act 2.0 has modified a few things related to charitable remainder trusts and how they are funded, as well as how the distributions are made. 

Qualified Charitable Distribution

Do you plan to include charitable giving in your estate planning? If you know that your IRA has more money in it than you will need in retirement, you can start to make qualified charitable distributions (QCDs) to a charity of your choosing. With the new SECURE 2.0, these funds can now be funneled directly from an IRA into a CRT

While that is good news for those who want to give back as part of their legacy, you will encounter some stipulations. For example, you can only make one $50,000 QCD to one of these charitable remainder trusts in your lifetime. Distributions from the CRT are taxed as ordinary income and the payments must begin within one year.

Be sure to plan ahead to determine whether this new rule will help you to make smarter financial decisions.

Limited Beneficiaries

It is also important to note that there is a change to the income beneficiaries on your charitable remainder trust with the new SECURE Act 2.0. Income beneficiaries are limited to you as the donor or you together with your spouse. This may be limiting to many people who want to name other beneficiaries to benefit from their wealth. 

You also cannot fund this same CRT with gifts or other assets. 

These same restrictions do not apply if you fund the charitable remainder trust without taking your QCD from your IRA. The details regarding the strict nature of taxation, distributions being taken, and the designated beneficiaries are all unique to this new rule of transferring money between your IRA and a brand-new CRT. 

Keep in mind that there are some drawbacks to the new SECURE Act. For example, most people who benefit from a charitable remainder trust are contributing upwards of $100,000. Unless both you and your spouse are making the QCD maximum of $50,000 each, you may find that this strategy is not in alignment with your financial goals. 

A charitable gift annuity may be the better fit if you do not plan to maximize the QCD. Learn more about the difference between a charitable remainder trust and a charitable gift annuity here

Get Professional Help from Magellan Planning Group

Navigating the complex world of CRTs and changes to retirement savings plans can be taxing to busy individuals, especially if you have a complex portfolio. Let Magellan help you make the most strategic decisions based on the SECURE Act 2.0 and any future changes that may come your way. Contact us today to schedule a free consultation and learn how we can help refine your financial goals!

For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.