How can you use a charitable IRA rollover to your advantage with a charitable remainder trust? Since 2022, you now have the option to move money from an IRA to a CRT, but the process is not as simple or as straightforward as many people assume it to be. Rules and exceptions define the process, so make sure you know what to expect beforehand.
This guide will walk you through the framework and rules in place to allow you to benefit from a charitable IRA rollover.
What is a Charitable IRA Rollover?
When it comes to funding your charitable remainder trust, you should know all of the options on the table. The SECURE 2.0 Act of 2022 introduced a powerful yet highly specific provision that many people are utilizing to establish lasting trusts for their beneficiaries.
In a one-time exception, you can use a portion of the Individual Retirement Account (IRA) to fund a life-income gift, which also includes a charitable remainder trust.
Of course, there are numerous rules that govern this one-time opportunity to roll over your IRA into a CRT. Let’s dive in.
5 Rules of the One-Time IRA-to-CRT Transfer
Curious to know if your IRA can be used to fund a charitable remainder trust? These five rules lay the groundwork for any major changes you want to make to convert an IRA to a CRT. Ensure that you can abide by all of them, or work with a professional who can help you navigate the rollover.
1.One-Time, One-Year Election
This rule is the simplest of the bunch: You can only use this provision in one single tax year during your entire lifetime. Choose wisely to determine when to best utilize the exception, with no do-overs possible.
2.The $54,000 Limit (for 2025)
The maximum amount you can transfer from your IRA to a charitable remainder trust is $54,000 (indexed for inflation, so it may change in the coming years). However, there is a special note that you need to take heed of: This $54,000 counts toward a total annual $108,000 qualified charitable distribution (QCD) limit.
This limit places restrictions on how much a person can contribute to a qualified public charity from their IRA if they are 70 ½ years of age or older. Because the CRT does donate some of the funds to charity at the conclusion of the trust, the contribution from your IRA will fall under these QCD limits.
There is also a spousal rule surrounding the QCD limit. A married couple could each contribute $54,000 from their respective IRAs, potentially funding one joint-life CRT with $108,000.
3.The Exclusive Funding Rule
For those who intend to use a charitable remainder trust to offload some of their assets from a large estate to beneficiaries, this rule may put a damper on your plans. This exception limits you to funding your trust only by this IRA transfer. With the Exclusive Funding rule, you cannot add any other assets, like appreciated stock, to this specific trust. For many, this limitation may not justify the expense of a CRT.
4.Beneficiary Restrictions
If you have been following the rules thus far, this one may be the rule that hinders you from using a charitable remainder trust as you would like. You cannot name just any beneficiary for your trust as you would under normal circumstances. When you use this exception provided under SECURE 2.0, the only income beneficiaries allowed are the IRA owner and/or their spouse.
This means that children and other heirs cannot truly benefit from this financial maneuver. Think carefully about how you want to see these funds used in your lifetime. If you want to give them to someone other than a spouse or use them for purposes other than your personal gain, this might not be the savviest move for your portfolio.
5.Payout Rules
You name yourself or your spouse as the beneficiary of your new trust. The last rule pertains to how and when those upcoming payouts must be made. The rule is that the payout rate must be 5 percent or more of the value of the new trust. You have some flexibility in determining how you would like to withdraw your funds from the trust and how quickly.
The other half of this rule pertains to when those payments must begin. You have one year once you fund the CRT to start taking payouts from the trust. In other words, you cannot make any sort of deferred gift with your rollover.
Magellan Can Help You Parse the Details
Not sure if you want to roll over your IRA into a charitable remainder trust? The process is heavy with rules and restrictions on what you can do and how you can use these funds. Magellan can help you figure out if this is the best financial move for you and your portfolio.
We offer comprehensive legal, tax, financial, and estate planning services all under one convenient roof.
With a specialty in charitable remainder trusts, we know all of the rules and loopholes that allow you to use them to your advantage. Give us a call today to talk about your options and set up a consultation with one of our experts!
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.
This material provided by Kevin Meaders was written by Axle Eight, a non-affiliate of Magellan Planning Group and Cetera Advisor Networks LLC.