SECURE Act 2.0 Allows QCDs of $50,000 to Split-interest Entity

By Denise Appleby

SECURE Act 2.0 allows a one-time election to make QCD to a split-interest entity. Subject to a $50,000 aggregate limit.

Prior to SECURE Act 2.0, an IRA owner’s qualified charitable distribution (QCD) was limited to $100,000 per year. In addition to meeting other requirements, a QCD must be made payable to a charity as defined under IRC § 170(b)(1)(A), other than private foundations described in IRC § 509(a)(3), or a donor advised fund as defined in IRC § 4966(d)(2). SECURE Act 2.0 expands the QCD provision, by allowing an IRA owner to make a one-time election to make a a QCD to a split-interest entity.

This provision is effective for tax years beginning 2023 and adjusted for inflation.

The split-interest entity QCD  would qualify for the exclusion from income tax treatment that applies to other QCDs, if the following requirements are met:

(I)        the IRA owner does not have an election in effect to make a QCD to a split-interest entity for a preceding taxable year,

(II)       the aggregate amount does not exceed $50,000, and

(III)     such distribution meets “Contributions must be otherwise deductible” and “Limitation on income interests” explained below.

Split-Interest entity defined

For the purpose of this provision, the term `split-interest entity’ means:

1. a) a charitable remainder annuity trust, but only if such trust is funded exclusively by QCDs,
2. b) a charitable remainder unitrust, but only if such unitrust is funded exclusively by QCDs, or
3. c) a charitable gift annuity, but only if such annuity is funded exclusively by QCDs and commences fixed payments of 5 percent or greater not later than 1 year from the date of funding.

Contributions must be otherwise deductible.

A QCD to a split-interest entity must be otherwise deductible. This requirement is met if:

1. a) in the case of a distribution to a charitable remainder annuity trust or a charitable remainder unitrust, a deduction for the entire value of the remainder interest in the distribution for the benefit of a specified charitable organization would be allowable under section 170 (determined without regard to any inflation adjustments), and
2. b) in the case of a charitable gift annuity, a deduction in an amount equal to the amount of the distribution reduced by the value of the annuity would be allowable under section 170 (determined without regard to any inflation adjustment).

Limitation on income interests.

For a QCD to a split-interest entity, the amount qualifies for the QCD treatment only if:

1. no person holds an income interest in the split-interest entity other than the individual for whose benefit such account is maintained, the spouse of such individual, or both, and
2. the income interest in the split-interest entity is nonassignable.

Taxpayers must operate under tax advice

Special rules apply regarding the tax treatment of distributions made from a split-interest entity, and the treatment. Taxpayers who make QCDs must consult with their tax advisor regarding these and any other rules that apply to QCDs.

Effective date: tax years beginning 2023