Tax Planning is a constant stream of adaptation to the new rules that the government and IRS come up with annually. One year we have a tax credit for new windows, the next year it goes away, but a new credit for heat pumps is added. The only constant is change.
Occasionally, policies that are popular are extended and made permanent when the IRS has enough time and data that they can see that the tax break is having the expected effect in their budget for other government agendas.
The new LIQCD (Legacy IRA Qualified Charitable Contribution) is one of those items that was added during the Secure 2.0 tax package in late 2022 that has yet to become mainstream, but it will because it helps with several tax issues and government agendas all at one time.
The IRS has allowed Qualified Charitable Distributions from IRAs to Charities for some time now for people 70.5 or older, with a $100,000 limit (and now with an inflation COLA added,) but this new subset is very different. It is a QCD rollover to Life Income Plans. Beginning in 2023, the Act expands the definition of QCDs to include one-time distributions to create life income plans. Although other important rules apply to the new QCD for life income plans, the difference is that with a QCD there was no benefit to the taxpayer other than the tax benefit of giving money away from an IRA without creating taxable income on their return. But they were still GIVING MONEY AWAY!
This new LIQCD is a game changer, as it is still a tax free distribution from an IRA that satisfies Required Minimum Distribution (RMD) rules, but it also sends INCOME TO THE TAXPAYER for their ENTIRE LIFE, before the money goes to the charity. That’s a huge difference, as only a small percentage of people can simply give large amounts of money away, but everyone can use LIQCD to create lifetime income and then have what’s left over after they die then go to a charity!
There are more facts and details that are important to know, but now at least you have heard about it and know to ask and research this underutilized and potentially beneficial tool that was inserted into the code!
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