The Legacy IRA Act, introduced in the House (H.R. 3832) and the Senate (S. 1257), would authorize tax-free individual retirement account rollovers for gifts that benefit charities and provide taxable retirement income—charitable life-income plans—for the donors. At the donor’s death, the assets in the plan are owned outright by the qualified charity. Charitable deductions aren’t allowable for amounts transferred to the life-income plans (charitable remainder trusts and charitable gift annuities). But not being taxed is the equivalent of a charitable deduction.
Many tax bills are introduced in each session of Congress. Few are enacted. Those that are enacted almost always are incorporated in major legislation. The Legacy IRA has bipartisan and bicameral support, benefits the public and has a Joint Committee score (cost) of only $106 million over 10 years. (In federal budget numbers; that’s why it sounds like a rounding error.)
The Legacy IRA has broad public support and the endorsement of over 20 national charities, which has been communicated to key members of the Senate Finance and House Ways and Means tax-writing committees. This bill could hitch a ride on must-pass legislation
It authorizes tax-free IRA rollovers for gifts that benefit charities and provide taxable retirement income—charitable life-income plans—for the donors. At the donor’s death, the assets in the plan are owned outright by the qualified charity.
Qualified Charities
These are public charities (other than donor-advised funds and supporting organizations) and private and operating and passthrough (conduit) foundations.
Annual Ceiling
The annual ceiling on transfers from a donor’s IRA for a life-income plan is $400,000 for individuals age 65 or older. For individuals 70½ or older, the combined ceiling for direct outright transfers from IRAs (under current law) and for the new life-income transfers from their IRAs would be $400,000, with a $100,000 cap for the direct transfers.
Required Minimum Distributions
The types of life-income plans assure that the annual taxable payments will generally be equal to (or greater than) what individuals must receive under the required minimum distribution (RMD) rules had they kept the funds in their IRAs instead of rolling them over for charitable life-income plans.
Minimal Revenue Cost to Government
Under the authorized life-income plans, the IRA owners will be taxed on income received at ordinary income tax rates. Because the payouts are 5% or more, generally more income will be paid from the charitable life-income plans than under the normal RMD rules. The only authorized income beneficiaries of the life-income plans are the individual IRA owner, her spouse or both of them. At death, the assets in the plan go directly to the named qualified charity or charities and not to family members.
Preserve Retirement Income
Why wouldn’t IRA owners just give outright to charity (direct gifts) from their IRAs as provided under current law? Many IRA owners want to make charitable gifts, but also need retirement income. The life-income IRA rollover is a way for donors of average resources to combine charitable gifts with retirement income. Many charities have donors “standing by” to make life-income charitable gifts from their IRAs.
Who Can Use?
This is a middle class charitable IRA rollover. It allows average Americans (who meet the minimum age requirement), not just wealthy taxpayers, to benefit charities.
Not Permanent
The provision wouldn’t be permanent but would be for a four-year trial period for life-income charitable IRAs. That provides adequate time to determine the provision’s efficacy.
I’ll give the final words to Will Rogers: “We could certainly slow the aging process down if it had to work its way through Congress.”
© Conrad Teitell 2019. This is not intended as legal, tax, financial or other advice. So check with your advisor on how the rules apply to you.
