Giving Made Easier: IRA Charitable Rollover Update

April 21, 2023
BBH Wealth Planner Peter Moshang discusses the permanent extension of the IRA charitable rollover, focusing on the benefits it provides philanthropic individuals in their charitable gift planning.

Taxpayers with traditional individual retirement accounts (IRAs) will be pleased to know that under the Secure Act 1.0 and 2.0, there is additional flexibility for individuals to utilize the IRA charitable rollover, allowing philanthropic individuals greater flexibility in their charitable giving and estate planning.


In many cases, taking a distribution from an IRA and then contributing it to charity generates a tax liability for the IRA owner. Even if the amount of the donation is the same as the amount of the IRA withdrawal, the charitable deduction might not fully offset the income generated by the withdrawal. For example, taxpayers who claim the standard deduction instead of itemizing their deductions would not get the tax benefit of their gift because the additional income resulting from the IRA withdrawal would not have a corresponding deduction. Higher-income taxpayers may also be subject to the Pease limitation on itemized deductions, which would reduce the value of the charitable deduction such that it would fail to completely offset the IRA distribution. In addition, if a taxpayer makes a cash donation to a public charity, he or she can only claim a deduction of up to 50% of his or her adjusted gross income (AGI). If the gift consists of appreciated marketable securities, the deduction is even more limited – to 30% of AGI. Any unused deduction can be carried forward for up to five years, at which point it would expire. In such cases, the taxpayer’s generosity would wind up generating a net tax liability.

To address these problems and encourage charitable giving more broadly, Congress enacted the IRA charitable rollover in 2006 as part of the Pension Protection Act. Consequently, an individual age 70.5 or older could donate up to $100,000 from his or her IRA directly to a public charity without having to treat the distribution as taxable income. Moreover, the donation to charity would count toward the taxpayer’s required minimum distribution (RMD) for the year.  This type of distribution is referred to as a qualified charitable distribution (QCD).

Initially, and unfortunately, Congress got into the habit of only authorizing the IRA charitable rollover for one year at a time. Taxpayers often had to wait until December – or even later – to receive confirmation that the technique had been reauthorized for that year. By that point, however, most taxpayers would have already taken the RMD from their IRA for that year, making it impossible to use the IRA charitable rollover for those funds.

However, at year-end 2015, Congress enacted a law to make this technique permanent. As a result, taxpayers are able to plan their charitable giving in a more reliable way. If a taxpayer is required to take a minimum distribution from an IRA that he or she does not otherwise need, that distribution can instead be directed to a public charity.

Modification Under Secure Act 1.0 and 2.0

Effective January 1, 2020, Congress acted a law, known as the Secure Act 1.0, that altered some of the rules relating to the IRA charitable rollover. Congress enacted further legislation at the end of 2022, Secure Act 2.0, that also provided additional changes to these rules.

The Secure Act 1.0 and 2.0 still allow an individual age 70.5 or older to make QCDs as part of the IRA charitable rollover. However, the Secure Act 1.0 permitted individuals of any age to make IRA contributions (so long as the individual has earned income) and, correspondingly, any distributions to charity directly from an IRA only will be QCDs to the extent that the distribution exceeds the aggregate additions to the IRA after the participant has reached age 70.5. Any distributions attributable to additions after such age will be treated as income payable to the participant, and the participant can take a related income tax deduction.  Accordingly, additions to an IRA after age 70.5 can reduce your QCD allowance. This rule is designed to prevent, for example, an individual from contributing funds to an IRA (and taking an income tax deduction for so doing) and then transferring those funds to charity (and reducing the RMD).

Additionally, the Secure Act 1.0 and 2.0 have increased the ages at which certain individuals must begin taking RMDs from IRAs. Any QCDs after an individual reaches age 70.5, but prior to the age that he or she must begin taking RMDs, will not count toward future RMDs.

For example, an individual who is 71 years old contributes $20,000 to his IRA and makes no further contributions.  At age 74, the client makes a $100,000 distribution to charity directly from his IRA. Under the new rules, the first $20,000 would be treated as being taxable income to the individual, and the individual can take an associated charitable deduction. The remaining $80,000 would be a QCD. Accordingly, clients should make sure that they will be able utilize the associated charitable deduction in these types of transactions.

In addition, the Secure Act 2.0 now allows an individual to make a one-time transfer of up to $50,000 to certain split-interest entities, a charitable remainder trust, or a charity in exchange for a charitable gift annuity. Note that this $50,000 counts toward the annual $100,000 limitation. There are certain restrictions on these types of donations, including:

  • Any lifetime income payment must only be made to an individual (or such individual’s spouse), start within a year, and cannot be assigned.
  • All distributions will be treated as ordinary income.
  • No other contributions may be made to the trust or entity.
  • The individual (or spouse) may not assign any interest in the entity.

It is important to note that the IRA charitable rollover is not available to taxpayers who are younger than 70.5 years old, for amounts greater than $100,000, or for distributions to a private foundation, donor-advised fund, or split-interest entities, such as a charitable remainder trust, and others that meet the limited exceptions outlined above.


To illustrate the benefits of the IRA charitable rollover, consider a 73-year-old taxpayer named Thomas in 2023, who has an investment portfolio that generates enough income for him to live comfortably, as well as a traditional IRA worth $1 million. Thomas is scheduled to begin taking annual RMDs from his IRA later this year, but he does not anticipate needing the extra income, which will be around $37,700 for the first year. He knows that leaving the IRA to his children will subject the IRA assets to both estate and income tax, resulting in well over half of the IRA being lost to taxes. Thus, Thomas is considering leaving his IRA to his alma mater to help satisfy a $2.2 million pledge that he made in honor of his late wife. The balance of his estate would then pass to his children.

Thomas’ wealth planner lays out two scenarios for him:

Under scenario one, Thomas designates the university as the beneficiary of his IRA upon his death. He continues taking the RMDs, which will be taxable income to him. Assuming a 6% investment return, the total RMDs over the course of the next 20 years is projected to be $1,361,245. At a 37% marginal tax rate, this generates a cumulative tax liability of $503,661. The after-tax portion of each RMD is invested, and over the next 20 years, this “RMD pot” grows to around $1,481,053. If Thomas were to die at that point, the assets remaining in the IRA ($856,258) would pass to the university. The outstanding balance of his original pledge ($1,343,742) would have to be paid from his estate, essentially wiping out the RMD pot. The balance of the estate would pass to his children. 

Under scenario two, Thomas directs his IRA custodian to begin distributing the amount of his RMD directly to the university every year. Over the next 20 years, $1,361,245 in RMDs is paid to the university, avoiding the $503,661 in income taxes that would have been due if Thomas had received the RMDs. These payments also reduce the amount of the pledge outstanding. At Thomas’ death, the $856,258 remaining in the IRA passes to the university as well, satisfying – and slightly exceeding – his obligation under the original pledge agreement. No additional payment is required from the estate.

Thomas prefers scenario two because it avoids the $503,661 in taxes that he would pay under scenario one, and instead applies this sum to the university’s benefit. The university also prefers scenario two because payments on the pledge would begin immediately, rather than upon Thomas’ death. This stream of RMDs could then grow to more than $2.35 million in the university’s tax-exempt hands, compared with a projected $1.48 million in Thomas’ after-tax hands. The difference is an additional $870,000 for the university at the end of the 20 years. Thomas’ children receive virtually the same amount under either scenario, so they do not object to scenario two. The parties also appreciate that the plan can be modified at any time, as Thomas can start keeping the RMDs for himself, rather than directing them to be paid to the university.


With the permanent extension of the IRA charitable rollover, taxpayers can more reliably incorporate this technique into their charitable gift planning. In some cases, this can lead to enhanced benefits for charity at little or no direct cost to the taxpayer’s family. To discuss this technique in greater detail, please contact a Brown Brothers Harriman wealth planner or relationship manager.

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