How the SECURE Act May Affect Qualified Charitable Distributions | Lord Abbett
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Retirement Perspectives

For account owners that make charitable contributions directly through a traditional IRA, it’s important to know the new rules.

In our continuing series about the SECURE Act, we’ll explain how the new law potentially affects making a charitable contribution directly from an individual retirement account (IRA)–known as a qualified charitable distribution (QCD). (In case you missed it, we have covered new SECURE Act provisions that affect required minimum distribution (RMDs) and provide a new distribution for the adoption of a child.)

A QCD works like this: An eligible individual can donate up to $100,000 (annually) via a trustee transfer directly from their IRA to a qualifying charity. The individual does not receive a tax deduction; however, the amount of the QCD is excluded from taxable income. Plus, a QCD can be used to satisfy all or a portion of an individual’s annual required minimum distribution (RMD).

Although a SECURE Act provision raised the required begin date (RBD) age for RMDs from 70½ to 72, the QCD minimum age was not changed – it remains at age 70½. Therefore, QCDs can still be made prior to your required begin date for RMDs. However, making an “early” pre-age 72 QCD will not reduce or offset future RMDs.

The inconsistency between the QCD age (70½) and the new RMD age (72) will most likely cause confusion. Advisors, we recommend that you contact clients that have expressed interest and/or have made QCDs previously to make them aware of the age discrepancy.

Another provision in the SECURE Act eliminates the age cap for traditional IRA contributions. Beginning January 1, 2020, anyone with earned income, regardless of age, can contribute to a traditional IRA!  (Notably, traditional IRA was the only type of IRA for which eligibility ended due to age restriction. There is no age cap for contributions to Roth, SEP, and SIMPLE IRAs.)

Sounds good, right? There’s one more thing to know. The SECURE Act includes an “anti-abuse” clause that coordinates post-age 70½ deductible traditional IRA contributions with a QCD: Any QCD will be reduced by the total amount of post-age 70½ traditional IRA deductible contributions that were not previously used to offset an earlier, prior year QCD. In other words, deductible traditional IRA contributions made after age 70½ cannot be reused to be made as QCDs; Congress simply decided to eliminate the opportunity to make QCDs from post-age 70½ deductible IRA contributions. Here are a couple of examples to illustrate this:

QCD anti-abuse example I
Anthony, 76, has compensation (earned income) working part-time at his son’s veterinary practice. Anthony makes a deductible traditional IRA contribution of $7,000. Anthony, in the same tax year as his IRA contribution, makes a QCD for $10,000. Due to the anti-abuse provision, his otherwise tax-free QCD is reduced by the deductible contribution amount, triggering $7,000 of his $10,000 QCD to be taxable.

QCD anti-abuse example II:
Meredith, 72, works part-time at a local nonprofit. Looking to reduce her adjusted gross income, she makes a $7,000 deductible contribution to her traditional IRA. Meredith subsequently makes the same $7,000 IRA contribution until she is 80 when she officially retires. Therefore, Meredith made eight deductible (post 70½) contributions of $7,000 each – totaling $56,000.

Meredith retires and subsequently makes a $60,000 QCD to the nonprofit organization she previously worked for. This is Meredith’s first QCD. Unfortunately, Meredith is required to “deduct” the aggregate amount of all her post-70½ deductible traditional IRA contributions first. When the dust clears, $56,000 (total post 70½ deductible IRA contributions) of Meredith’s $60,000 QCD becomes taxable - only $4,000 qualifies as a QCD and is excluded from her income. Thus $56,000 that would otherwise qualify as a QCD is disallowed due to the anti-abuse rule.

Are (deductible) traditional IRA contributions made before age 70½ impacted by the anti-abuse rule?
No. Congress was concerned only with deductible traditional IRA contributions made after age 70½.

What strategies are available to combat the anti-abuse rule?
Married couples that are seeking a tax deduction and are charitably inclined could have one spouse make all the deductible IRA contributions, whereas the other spouse would make the QCD via his/her account. The spouse making the QCDs would not be exposed to the anti-abuse rule, because their spouse made one or more post-70½ deductible IRA contributions.

Contribute (on a pretax basis) to a workplace retirement plan (i.e. 401(k), 403(b), 457, etc.) and SEP or SIMPLE IRA. Notably, post 70½ contributions funding a SEP or SIMPLE IRA are not included in the anti-abuse rue – only deductible traditional IRA contributions impact QCDs.

We will continue to provide more updates about provisions in the SECURE Act. Click here to get a summary of our recent webinar about the new law – you can also listen to the replay.

Advisors, if you have additional questions, please contact your Lord Abbett representative at 888-522-2388.


To comply with Treasury Department regulations, we inform you that, unless otherwise expressly indicated, any tax information contained herein is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed under the Internal Revenue Code or any other applicable tax law, or (ii) promoting, marketing, or recommending to another party any transaction, arrangement, or other matter.

The information is being provided for general educational purposes only and is not intended to provide legal or tax advice. You should consult your own legal or tax advisor for guidance on regulatory compliance matters. Any examples provided are for informational purposes only and are not intended to be reflective of actual results and are not indicative of any particular client situation.

The information provided is not directed at any investor or category of investors and is provided solely as general information about Lord Abbett's products and services and to otherwise provide general investment education. None of the information provided should be regarded as a suggestion to engage in or refrain from any investment-related course of action as neither Lord Abbett nor its affiliates are undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity. If you are an individual retirement investor, contact your financial advisor or other fiduciary about whether any given investment idea, strategy, product or service may be appropriate for your circumstances.

Traditional IRA contributions plus earnings, interest, dividends, and capital gains may compound tax-deferred until you withdraw them as retirement income. Amounts withdrawn from traditional IRA plans are generally included as taxable income in the year received and may be subject to 10% federal tax penalties if withdrawn prior to age 59½, unless an exception applies.

A Roth IRA is a tax-deferred and potentially tax-free savings plan available to all working individuals and their spouses who meet the IRS income requirements. Distributions, including accumulated earnings, may be made tax-free if the account has been held at least five years and the individual is at least 59½, or if any of the IRS exceptions apply. Contributions to a Roth IRA are not tax deductible, but withdrawals during retirement are generally tax-free.

A SIMPLE IRA plan is an IRA-based plan that gives small-business employers a simplified method to make contributions toward their employees’ retirement and their own retirement. Under a SIMPLE IRA plan, employees may choose to make salary reduction contributions and the employer makes matching or nonelective contributions. All contributions are made directly to an individual retirement account (IRA) set up for each employee (a SIMPLE IRA). SIMPLE IRA plans are maintained on a calendar-year basis.

A simplified employee pension plan (SEP IRA) is a retirement plan specifically designed for self-employed people and small-business owners. When establishing a SEP IRA plan for your business, you and any eligible employees establish your own separate SEP IRA; employer contributions are then made into each eligible employee’s SEP IRA.

401(k) is a qualified plan established by employers to which eligible employees may make salary deferral (salary reduction) contributions on an aftertax and/or pretax basis. Employers offering a 401(k) plan may make matching or nonelective contributions to the plan on behalf of eligible employees and may also add a profit-sharing feature to the plan. Earnings accrue on a tax-deferred basis.

A 403(b) plan (also called a tax-sheltered annuity or TSA plan) is a retirement plan offered by public schools and certain 501(c)(3) tax-exempt organizations. Employees save for retirement by contributing to individual accounts. Employers can also contribute to employees' accounts.

A 457 plan is available for certain state and local governments and non-governmental entities tax exempt under IRC Section 501. They can be either eligible plans under IRC 457(b) or ineligible plans under IRC 457(f). Plans eligible under 457(b) allow employees of sponsoring organizations to defer income taxation on retirement savings into future years. Ineligible plans may trigger different tax treatment under IRC 457(f).

A defined contribution plan is a retirement plan that's typically tax-deferred, e.g. a 401(k), at employers. An employee contributes a percentage of his/her paycheck in an account to fund retirement. The sponsor company will generally match a portion of employee contributions.

A required minimum distribution (RMD) is the minimum amount an account owner must withdraw from a retirement account each year. An owner generally has to start taking withdrawals from a retirement plan account at age 70½. Roth IRAs do not require withdrawals until after the death of the owner.

A required beginning date (RBD) is the official date when a retirement plan participant must begin to receive required minimum distributions (RMDs) from their account, such as an IRA or 401(k) plan.


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