After Congress passed a series of retirement changes at the end of last year, retirees are now able to earn an annual income by giving some of their IRA savings to charity, writes Ashlea Ebeling for The Wall Street Journal.
Retirees who donate up to $50,000 from their individual retirement accounts to charities can get back monthly retirement paychecks at fixed rates of up to 9.7 percent, depending on their age. This is applicable to retirees who are at least 70 years and six months old.
The new law is coming into effect at a time when the wealthiest generation in history is starting to retire, with a good part of their wealth already in retirement accounts. While gift annuities have been an option for donating to charities for years, the donations could not previously be made directly from retirement accounts.
Charitable gift annuities provide both giver and receiver with certain benefits. Small liberal arts colleges, as well as huge charities like the American Red Cross, are currently signing up donors for the contracts. These include those that are funded with IRA dollars. Meanwhile, these contracts appeal to retirees because they give them a way to make a charitable splash and at the same time generate income.
Fred Hubler — CEO, Chief Wealth Strategist, and Forbes.com contributor — likes when strategies can be win/win. According to Hubler, “If we can help a charity, while also helping the client in retirement, that tends to be a good use of some assets. Besides charitable gift annuities, there are other avenues for clients to help themselves as they help a nonprofit.”
The gifts contribute to the mandatory minimum distributions, which are the yearly withdrawals older Americans have to take from their retirement accounts. Usually, these withdrawals get taxed as income, but if they are directed to charity, they are tax-free. In exchange for the gift they receive, the charities agree to provide fixed annual payments to the giver. This is similar to a traditional annuity purchased from an insurance company.
Read more about the retirement tax break in The Wall Street Journal.
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