SECURE Act Affects IRA contributions & the IRA rollover

The Setting Every Community Up For Retirement Enhancement Act of 2019 (the SECURE Act) affects charitable rollovers, formally called Qualified Charitable Distributions (QCDs). 

In summary:

  • The maximum age for deductible IRA contributions was repealed.
  • Individuals must now take Required Minimum Distributions (RMDs) beginning at age 72, not 70½.
  • Individuals who are age 70½ may still direct QCDs from their IRA directly to charity, without taking the money into income or getting a tax deduction for the gift. The age for QCDs DID NOT change from 70½ to 72.
  • Because you can keep making deductible contributions into your IRA, the new law has a provision to keep individuals from double-dipping by making deductible contributions into their IRA while simultaneously making QCDs from their IRA.
  • If an individual makes contributions to their IRA after they reach age 70½, those contributions may reduce the amount of the annual $100,000 QCD limit that can be excluded from gross income in any year in which the individual attempts to make a QCD. (Contributions after age 70½ and reductions in QCDs resulting from this rule are recorded cumulatively and the cumulative numbers are used to determine the reduction amount when a QCD is attempted.) 
  • One still cannot make an IRA distribution directly to a donor-advised fund, but may do so to other funds at the Community Foundation at age 70½.

The new law deleted section 219(d)(1), which was the 70½ age limit for making deductible IRA contributions, so now people can add to their IRAs at any age. This puts older people in a position to add to their IRA and deduct those additions “above the line” from gross income, if their income is low enough to allow them to deduct IRA contributions in the first place. (Higher-income individuals generally cannot deduct their annual contributions, but they still benefit from tax-free growth of the IRA asset.

The new law contains a mechanism to prevent people from double-dipping — in other words, preventing them from BOTH deducting their contributions and making a QCD with the same dollars. There is a formula to reduce the annual QCD limitation below $100,000 for older donors who have made deductible IRA contributions after age 70½. The formula will basically look back at any contributions they have made to their IRA since turning 70½ and count those as taxable income up to the extent of the QCD they are attempting to make.  

Please note: The IRA rollover prohibition for donor-advised funds is still in place, but for a donor who wants to make a IRA rollover gift to a charity or the Community Foundation's endowment or a designated fund (i.e., instead of a donor-advised fund), the 70½ age limitation still applies there.  

Click here for a summary of the SECURE Act, prepared by the House Ways and Means Committee.

An Example

An individual makes $5,000 in deductible contributions to their IRA in year 1 and year 2 when they are 71 and 72, respectively, for a total of $10,000, and they have made no other contributions or QCDs since turning 70½. In year 2, the individual makes a QCD of $40,000 to a local charity. Using the formula above, they can only exclude $30,000 of their charitable distribution from gross income because their $40,000 charitable rollover is reduced by $10,000, which is the cumulative amount of deductible contributions they made to their IRA in years 1 and 2. Their IRA administrator should count $10,000 as a taxable distribution and $30,000 as the QCD.

The individual must show the $10,000 as part of their taxable income (above the line) for the year, but can also report $10,000 as a charitable contribution, which counts toward their itemized deductions (below the line) and may allow them to exceed the standard deduction, depending on their filing status.