New tax law may incentivize seniors to give more to charities

Luis Alvarez/DigitalVision via Getty Images
(Luis Alvarez/DigitalVision via Getty Images)

When her mother died of cancer, Janet Shapiro knitted blankets for patients receiving chemotherapy and made annual donations to cancer charities.

After her father died of a stroke, she became an ardent supporter of the American Heart Association.

"My parents did very well in life, and they always wanted to give back," Shapiro said. "My faith tells me that we can't solve every problem there is, but we can start somewhere and try to fix something."

Over the years, Shapiro had saved and invested her money wisely, building a sizable stock portfolio. Some of her holdings had appreciated so much that she would incur significant capital gains taxes if she sold them. Instead, in 2016, she used some of those holdings to create a Charitable Gift Annuity, or CGA, with the American Heart Association.

The CGA works like this: In return for donating stock to the organization, the AHA will pay Shapiro a fixed stream of income for the rest of her life. In addition, she can claim a partial tax deduction. "Financially, it's a very valuable way to handle your assets," she said. "The high value of the stocks allowed me to give so much more than I could've given through a cash donation alone."

Until recently, the law prevented people from using IRA funds to create life-income gifts such as CGAs. That changed in January, when the Secure 2.0 Act of 2022 took effect. The law contains 92 provisions related to employer retirement plans and IRAs, including provisions of the Legacy IRA Act, which allows people 70½ and older to make a one-time qualified distribution of $50,000 from an IRA to a CGA, a charitable remainder annuity trust, or a charitable remainder unitrust. While the $50,000 cap can only be used in one calendar year, seniors may donate to multiple charities totaling $50,000 in that one-year period. The donations are tax-free and count toward a person's required minimum distribution.

In addition, starting in 2024, the act permanently indexes the existing IRA Charitable Rollover's $100,000 annual cap to inflation — the first increase in nearly 20 years.

The AHA led a coalition of nearly 60 of the country's largest charities, including the American Red Cross, and faith-based organizations to build bipartisan support among lawmakers for the legislation.

Sens. Kevin Cramer, R-N.D., and Debbie Stabenow, D-Mich., and Reps. Don Beyer, D-Va., and Mike Kelly, R-Pa., championed the inclusion of the Legacy IRA Act in the $1.7 trillion omnibus package Congress passed in December.

Planned giving experts believe the act may generate hundreds of millions of dollars in annual donations for charitable organizations, including tens of thousands of new or increased donations to the AHA.

"With passage of the bipartisan Legacy IRA Act, Congress would incentivize charitable giving to countless nonprofits nationwide that continue to face significant financial and operational obstacles in the wake of the pandemic," said Raymond Vara, volunteer chairperson of the board of the American Heart Association. "Our country is stronger when everyone has the opportunity to support the charitable organizations that work tirelessly to improve and enrich our communities."

"With the passage of the Legacy IRA Act, Congress will make it easier for seniors to give and will bolster nonprofits nationwide," he added.

Indeed, according to Blackbaud Institute's 2018 The Next Generation of American Giving Report, baby boomers are responsible for 41% of charitable donations nationwide.

As a result of the law, Janet Shapiro has been able to leverage her funds more effectively to support the American Heart Association.

In fact, she was the first donor to set up an account benefiting the AHA using her IRA funds. She now has five CGAs with the AHA and has also left the organization a gift in her will.

"I want to do good now, and I also want to leave a legacy," she said. "If we can do anything for this world, we should work to enhance people's health. I know the research I am supporting today can truly help change future lives."