When you are 70½ or older, you can make a contribution from your IRA to California Institute of the Arts and receive lifetime payments in return. This unique giving option combines the benefits of a Charitable Gift Annuity (CGA) and a Qualified Charitable Distribution (QCD) from an IRA. Here’s how it works:
What is a Charitable Gift Annuity
A Charitable Gift Annuity is a simple contract between you and California Institute of the Arts. In exchange for your charitable gift, California Institute of the Arts will pay you fixed annual payments for life. The payout rate is based on your age at the time of your gift and remains constant for your lifetime. California Institute of the Arts will manage and invest your contribution, and payments are backed by California Institute of the Arts's financial resources.
What is a Qualified Charitable Distribution?
A Qualified Charitable Distribution (QCD), sometimes called a “charitable IRA rollover,” is a tax-free transfer directly from your IRA to California Institute of the Arts. If you are at least 70½, you can make a QCD and avoid income tax on the transferred amount. While a QCD doesn’t provide a charitable deduction, it does satisfy your Required Minimum Distribution (RMD) without adding to your taxable income.
What is a Required Minimum Distribution?
When you are age 73 or older, you must take a Required Minimum Distribution (RMD) from your IRA each year. You must include your RMD in your taxable income, which increases your income tax and may have other tax effects, such as increasing the cost of your Medicare insurance. The fraction of your IRA balance that you must withdraw increases each year.
Why Fund a Gift Annuity from a Qualified Charitable Distribution?
Thanks to a new law in 2023, you now have the option to fund a Charitable Gift Annuity using a Qualified Charitable Distribution (QCD).
The combination of a QCD and a Charitable Gift Annuity (CGA) allows you to make a meaningful gift to California Institute of the Arts while securing fixed payments for life. By using a QCD to fund a CGA, you can also fulfill some or all of your Required Minimum Distribution (RMD) for the year. As a result, your gift can reduce or eliminate the tax you would otherwise owe on your RMD and provide reliable income throughout your retirement.
Key Benefits of Funding a CGA from a QCD
- Tax-Free Distribution from Your IRA
When you make a QCD, the amount transferred from your IRA to California Institute of the Arts is excluded from your taxable income. This can help lower your overall tax liability for the year while satisfying your RMD requirements. Although the QCD is not tax-deductible, you avoid paying income tax on the distribution to California Institute of the Arts. - Fixed Lifetime Payments
A Charitable Gift Annuity provides fixed and dependable payments for life. Your payout rate depends on your age at the time of the gift and remains unchanged for the rest of your life, giving you a reliable source of income regardless of market conditions. - Support for a Cause You Care About
Funding a CGA through a QCD allows you to support California Institute of the Arts’s mission in a way that creates a lasting impact. After your lifetime, the remaining balance of your annuity will support California Institute of the Arts’s goals. - Simplified Giving Option
A QCD-funded CGA is easy to set up and manage. You fill out a form provided by your IRA administrator and the QCD is sent directly from your IRA to California Institute of the Arts. You don’t need to worry about the complexities often associated with funding options like appreciated securities or real estate.
Important Considerations for QCD-Funded CGAs
- One-Time Option: Under current law, you can fund a CGA with a QCD in one year only, so it’s important to consider when this strategy aligns with your financial and charitable goals.
- Age: You must be at least 70½.
- Contribution Limit: The maximum contribution for a QCD-funded CGA for 2026 is $55,000 per donor. This limit is adjusted for inflation each year.
- Taxable Income on Annuity Payments: While your QCD is tax-free, the payments you receive from the CGA will be taxed as ordinary income. Factor this into your financial planning.
- Payments to You and/or Your Spouse Only: You and/or your spouse may receive the annuity payments, but no one else.
- No Tax on Transfer: While you will not receive an income tax deduction when you make your gift, you also will not owe tax on the withdrawal from your IRA.
- Only Certain IRAs Qualify: Your funds must be from a traditional or inherited IRA (inactive SIMPLE IRAs and inactive SEPs are also eligible).
How to Get Started
If you’re interested in learning more about funding a CGA from a QCD, California Institute of the Arts’s gift planning team can walk you through the process, answer questions, and help determine if this option is the right fit for your retirement and philanthropic goals.
Consult with Your Advisors
We encourage you to speak with your financial and tax advisors before making a gift. The IRS offers tax incentives for charitable giving, enabling you to support a cause you value while potentially reducing your tax burden.
Thank you for considering a generous gift to help sustain California Institute of the Arts.