Concurrent with the American Council on Gift Annuities raising rates, the Consolidated Appropriations Act of 2023 passed which creates important new charitable planning opportunities. Both are effective January 1, 2023.

1. Charitable Gift Annuities (CGAs) created with Qualified Charitable Distributions (QCDs)

  • The Act expands the definition of QCDs to include distributions to create CGAs and charitable remainder trusts (CRTs).
  • Some of the key provisions under the new Act include: 
    • This new type of QCD is a one-time maximum transfer of $50,000 in exchange with a charity for a CGA, or to a qualified CRT
    • The new QCD can only be done once during the lifetime of the IRA owner, and must occur within a single calendar year
    • Each spouse may contribute up to $50,000 to a joint CGA from their respective IRAs [resulting in a $100,000 CGA for the couple]
    • At least one of the income beneficiaries must be at least 70.5 years, and the CGA must have a payout rate of at least 5%, which effectively puts a lower limit on the age of the spouse
    • No deferred payment CGAs allowed and the CGA is non-assignable
    • The QCD gift does not qualify for an income tax charitable deduction but instead escapes income tax liability on the transfer
    • Annuitants must be the IRA owner and/or their spouse 
    • For additional details visit the ACGA website
  • If you have been talking to someone with an IRA who is concerned because they still need income, the QCD rollover could be an option.
  • Screening your donor demographics specifically for your 70.5+ donors will allow you to present this new opportunity for giving.
  • If your charity is currently accepting QCDs, you should be able to use the same process to fund the QCD $50,000 CGA rollover.

2. CGAs remain attractive to donors 

  • The ACGA’s suggested maximum payout rates have increased by approximately 0.6%, depending on the age of the annuitant. For example, for a single-life annuitant age 79, which is the average age for annuitants at the time of gift, the annuity rate has increased from 6.8% to 7.4%.
  • When compared to other relatively low-risk, income-producing options, such as government debt securities, the rates available on a CGA contract remain very attractive, especially for donors who value the philanthropic aspect (of leaving the residuum to the sponsoring charity).
  • Along with the increases in interest rates, the IRS discount rate continues to increase. The IRS discount rate is used in calculating the charitable deduction for donors in establishing new CGAs, and this is pertinent for taxpayers who itemize their tax deductions. Generally for those donors, the higher the discount rate, the higher the charitable deduction that is available and thus, larger up-front tax savings.

 

Income Method Income Rate
Single-Life CGA Contract (Age 61 and older)[1] 5.0% to 9.7%
S&P 500 Dividend Yield[1] 1.66%
10-Year Treasury Note[1] 3.88%
U.S. Money Market Fund Prime Retail Gross Yield[2] 4.11%

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The Endowment & Foundation National Practice Group

The Endowment & Foundation National Practice Group builds on our long-standing commitment to philanthropy and is focused on endowments, private and public foundations, and nonprofit organizations. We seek to help these organizations address their distinct investment, distribution and capital preservation challenges. For more information, contact Chris McGurn at christopher.mcgurn@pnc.com or Henri Cancio-Fitzgerald at henri.fitzgerald@pnc.com.