The Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law on December 20, 2019. With significant changes that went into effect on January 1, 2020, the SECURE Act may have an immediate effect on your tax, retirement, and estate planning.  

If you are nearing or in retirement, or a saver or investor in your 50s or 60s, you may wish to find out how the SECURE Act may affect you and your beneficiaries so you can adjust your plans if needed. If you would like to include a gift for Bentley, there are many ways charitable gifts can be integrated into your financial and estate plans to help you achieve your philanthropic goals. 

Changes that Might Impact You

The required minimum distribution (RMD) age increased. If you were born on or after July 1, 1949, you now have until age 72 to start withdrawing money from traditional IRAs and employer tax-deferred accounts such as 401(k)s, 403(b)s and 457s. Therefore, you have additional time to grow the funds in your accounts before you have to start withdrawing from them.

Working later means you can contribute more. If you are still earning income at age 70½ and beyond, you can now continue to contribute to a traditional IRA. Previously, only Roth IRAs could be funded after age 70½. This allows you to save more and grow your retirement funds.

However, leaving IRAs to heirs just got more expensive. Prior to the SECURE Act, beneficiaries of your IRA or 401(k) could “stretch” distributions over their lifetimes. Often, this allowed the account to grow tax-free for decades. While the SECURE Act preserved the “stretch” option for spouses, most non-spousal beneficiaries, such as children or grandchildren, now have only 10 years to withdraw the entire amount and pay all of the account’s required tax. For those heirs, this means that inheriting an IRA now comes with fewer advantages and a larger, accelerated tax bill. 

Charitable Solutions: IRA Gifts that May Reduce Your Taxes

Make a current gift to Bentley, which now may provide even more tax benefits to you. If you are 70½ or older, you can still make a tax-free gift from your IRA to a qualified charitable organization such as Bentley. If you are familiar with this giving option, known as a Qualified Charitable Distribution (QCD) or IRA Rollover gift, you are likely aware that you may transfer any amount up to a collective total of $100,000 per year (up to $200,000 per couple) directly to qualified charitable organizations without paying income tax on the distributions. If you must take RMDs, the total amount of your QCDs in a given year will count toward satisfying your RMD. Plus, the transfer generates neither taxable income nor a tax deduction, so you benefit regardless of whether you itemize your deductions.

If you aren’t required to take your RMD under the SECURE act, there are tax-smart reasons to consider a QCD once you turn 70½. First, recent increases in the standard deduction mean fewer taxpayers are choosing to itemize their income tax charitable deductions. If you don’t itemize, a QCD offers all the benefits of an income tax charitable deduction – although you can’t claim a deduction for your QCD, your QCD is not included in your income, and therefore not taxed. Another reason to consider a QCD at 70½ is to reduce the balance in your IRA to lower future RMDs. In the future, you may be in a position where you don’t want or need the income from your IRA, as higher income from an RMD can increase Medicare premiums and other tax issues. 

Plan a future gift to Bentley. At any age, you can do what many others have already done: make Bentley a full or partial beneficiary of your retirement account. As a charitable organization, Bentley would receive your gift tax-free, thereby enabling the full value of the amount you designated to support an area of Bentley meaningful to you. In this way, we can help you create a charitable legacy out of assets that may otherwise be highly taxed, enabling you to leave assets with more favorable tax treatments to your heirs. 
 
Simulate a “stretch” IRA by creating a life income gift in your estate plan to benefit your heirs, then Bentley. With the reduction of those eligible to take advantage of inherited IRA distributions over their lifetimes, you may find a charitable life income gift to be an attractive solution to provide lifetime income for your loved ones. For example, a charitable remainder trust can be funded at one’s passing with a qualified retirement plan such as an IRA, 401(k) or 403(b). Such a gift would preserve retirement assets, reduce taxes and provide payments to family members or other loved ones for the rest of their lives, with the remaining amount passing to Bentley.

Given the significance of the SECURE Act changes, proactive planning will help you make adjustments, avoid potential pitfalls and keep you on track to achieve your intended goals. There are many other retirement and charitable planning ideas that we would be pleased to discuss with you as you consider how to reduce taxes while maximizing the benefits of your retirement accounts for your beneficiaries and charitable organizations of choice. We would be happy to talk with you, and your financial and legal advisors if desired, to help you find the best plan to achieve your goals and make a meaningful impact at Bentley.