The New “Legacy IRA” is Here!

Legacy IRA
Legacy IRA

The “Legacy IRA” took effect on January 1, 2023, as a part of the “Secure 2.0” Act. This legislation has been in the works for about a decade so it’s exciting news, especially if you’re 70 or older. The gist of the new legislation – if you’re 70-1/2 or more, you can now allocate up to $50,000 from your traditional IRA directly into a charitable trust or gift annuity.

This article outlines the basics. But we encourage you to complete the form below to speak with one of our experts. We’d love to help you better understand this new legislation.

Understanding the Legacy IRA

The Legacy IRA is the result of persistent lobbying from the nonprofit sector for more than a decade. This legislation, signed into law on December 29, 2022, might look different from its initial proposals, but at its core, its original intent is the same – allow charitable contributions through your traditional IRA.

An interesting note – your distribution is excluded from your income, but if you’re 73 or older, it still counts toward your Required Minimum Distribution (RMD).

How the Legacy IRA Came About

The idea of a charitable IRA is not new. In 2006, the tax code introduced a provision allowing IRA participants 70-1/2 years or older to make “Qualified Charitable Distributions” (QCDs) up to $100,000 per year from one or more traditional IRAs.

The Legacy IRA is based on this previous concept but with some obvious differences.

Factors to Consider

For starters, the Legacy IRA allows only a one-time distribution to a “split-interest entity.” This distribution can be directed into a charitable remainder trust that doesn’t hold any other assets. Or, it can fund a gift annuity, but you must begin pulling from the annuity within a year. (In other words, the money is not allowed to sit for years untouched by you, the contributor.)

Another factor is your maximum distribution is $50,000 (only half of the 2006 provision of $100,000).

Also, know, your Legacy IRA contribution is an above-the-line deduction on your tax form. Therefore, the payout you receive from your charity of choice is considered ordinary income (hence the above-the-line deduction).

Morgan & Associates Can Help with Your Legacy IRA Contribution

With a firm understanding of your current financial position and the right help, you can make the most of this opportunity. It’s not just a chance to support a charity, but it’s also a sound move for your long-term financial planning.

Ready to explore further? At Morgan & Associates, we specialize in advanced tax strategies, tax planning and accounting services. Let our team of experts help you navigate the new Legacy IRA provision.

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