New Qualified Charitable Distribution (QCD) Provisions in SECURE Act 2.0 – Some Welcome, Some Dubious

By Edwin P. Morrow, III, J.D., LL.M., MBA, CFP®, CM&AA® and Nancy H. Welber, J.D., ACTEC

Thanks to the generosity of Leimberg Information Services, we are pleased to provide you this recently published article on LISI.


Section 307 of the SECURE 2.0 Act, effective beginning in 2023, provides an expansion of the qualified charitable distribution (QCD) provisions to adjust for inflation and include limited distributions to fund charitable gift annuities and charitable remainder trusts. There are several limitations that severely restrict the usefulness of this new provision, however, particularly for QCDs to charitable remainder trusts.


Congress recently passed the Secure 2.0 Act of 2022 as part of its 1,653-page consolidated spending bill, which became law on December 29, 2022 as part of the Consolidated Appropriations Act, 2023.[1]  Secure Act 2.0 is a follow-up, of course, to the SECURE Act passed in late 2019, and provides several dozen moderate tweaks and improvements to encourage retirement savings.

One provision, however, does the opposite of encouraging saving for retirement, it tries to encourage giving IRA accounts away. These are changes to the qualified charitable distribution (“QCD”) provisions (IRC Section 408(d)(8)) that encourage QCDs from IRAs to certain charities. The changes consist of a minor inflation adjustment and two major changes: enabling QCDs to fund a charitable gift annuity and enabling QCDs to fund a charitable remainder trust (these being limited to a one-time election capped at $50,000, adjusted for inflation).

Special thanks to Natalie Choate and Chris Hoyt for their collegial discussion and input regarding the topics in this short piece.

Quick Recap of Qualified Charitable Distributions (QCDs)

For those who are not familiar with qualified charitable contributions, they allow someone over age 70 ½ to make distributions from an IRA directly to qualifying charities. This threshold has not increased to age 72, nor age 73 or 75 as other RMD provisions have. Qualifying sources include inherited IRAs, but does not include a 401(k), 403(b), 457 or other similar accounts. It includes Roth IRAs, even though it would be rare to make any practical sense to make distributions from such accounts.

Distributions to private operating foundations are acceptable, but not distributions to donor advised funds, supporting organizations or other private foundations. Distributions can count towards someone’s required minimum distribution (RMD) as well (if they are old enough to have one). While a donor does not get a charitable income tax deduction,[2]a QCD is not included in adjusted gross income (AGI), which is often better for both state and federal income tax purposes. Many taxpayers (many more after the Tax Cuts and Jobs Act reforms in 2017) receive no tax benefit (or a very limited one) from ordinary charitable donations, whereas reducing AGI often reduces both federal and state income tax, the net investment income tax (NIIT), and impacts many other deductions and credits, including whether social security income is taxable or not. So, for someone charitably-minded over age 70 ½ with a traditional IRA (or an account able to be rolled into one), the QCD is a very appealing tax provision. Now, for the new Secure Act 2.0 changes.


Secure 2.0 Act Changes

Inflation adjustments 

These are easy to understand. Section 307(b) provides that the current limit of $100,000 per year will be indexed for inflation (rounded to nearest thousand) starting next year. For example, if there is an inflation adjustment of 4.8% for next year, the limit may be $105,000 in 2024. This only helps the wealthiest of taxpayers, as no one in the middle class could afford to give more than $100,000 away annually.  The $50,000 amount for QCDs to split-interest entities will also adjust for inflation.

New one-year-only QCD to either type of ‘split-interest entity’

There is a new election to treat a distribution to a charitable gift annuity (CGA) or a charitable remainder trust (CRT) as a QCD.  Congress refers to these together as “split-interest entities” even though an annuity is not an entity.  It is a “one-time” deal, limited to no more than $50,000. You can’t contribute $5,000 in 2023 and then $45,000 in 2024, or $50,000 to a CGA in 2023 and $50,000 to a CRT in 2023 (or later).

Boon to Charitable Gift Annuities 

The new provision allows a QCD to fund a charitable gift annuity (CGA) with the taxpayer (and/or spouse) as a recipient, with a one-time election of up to $50,000. Someone can probably just buy a commercial annuity with an insurance company and get a better deal financially, but people like doing so in a way that also benefits their favorite charity. For more information on these, see these links to the American Council on Gift Annuities (ACGA), with single-life and joint-life suggested payout rates.

There are a few differences between the QCD-funded CGAs and other CGAs, however. First, Congress doesn’t want these QCD-funded CGAs to be deferred annuities. The majority of commercial annuities purchased through insurance companies are deferred annuities  at some point in the future they may be converted into a stream of income, but are often not done so immediately (“immediate annuity”). CGAs can also be structured as deferred annuities, but the majority are probably immediate annuities. Congress requires QCD-funded-CGAs to start the annuity payments within one year of funding.

Highly Questionable Benefit and Uncertainty for Charitable Remainder Trusts (CRTs)

People frequently establish CGAs with less than $50,000. I have never heard of anyone establishing a CRT with less than $50,000. Both the initial setup and annual compliance costs are higher with a CRT. Almost every jurisdiction in the country has a statute allowing for early termination of uneconomical trusts, often referencing an uneconomical ceiling ranging from $50,000-$200,000[5]This should have been a clue to Congress.

Readers may think  Aha! we will just set up a CRUT and fund it with other non-IRA assets as well to make it more practical and cost-efficient. Congress doesn’t like efficiency! The new law requires a QCD-funded CRT to be funded “exclusively” from IRA QCD assets  a dollar from another source would disqualify the QCD (potentially years later retroactively).[6]

There are some very practical problems with the dollar limitations in this provision.

There is also a unique CRT qualification problem that Congress did not address, and another income-tax negative that does not exist with CRTs funded at death from IRAs.

A QCD-funded-CRT has a unique requirement that other CRTs do not, in that “(II) the income interest in the split-interest entity is nonassignable”.

This does not sound like much of an impediment at first, but what does that mean? Any creditor rights or bankruptcy attorney would tell you that spendthrift provisions are typically ineffective under state law for a settlor’s interest in a self-settled trust (such as a typical CRT), unless you qualify under a DAPT statute (and even this is subject to heated debate). You can certainly add “The settlor’s income interest is nonassignable” (in bold red letters in larger font if you want) to the CRT agreement, but it’s unlikely to have any effect on a creditor or bankruptcy trustee coming after a settlor/beneficiary’s income interest, so someone can effectively assign their interest by running up a debt and letting their creditor attach their income interest. Does a CRT comply with this statute if it’s assignable as a practical matter, but has a meaningless provision in it saying that it isn’t?

It’s likely that Treasury will not analyze a trust too far on this point, otherwise many trusts would be foreclosed from qualifying. Congress doesn’t care about asset protection. The gaming that Congress is probably trying to prevent here is that they don’t want people selling their CRT income interests a year later and converting high-rate ordinary income to lower-rate long-term capital gains income (which, surprisingly, there is some decent authority for). There are much more effective ways to combat this perceived abuse, however, with more certainty and clarity.

Unlike other CRTs, this QCD-CRT provision creates more traps by cutting off an important exit strategy for CRTs that are no longer viable, desirable or economical (if a QCD-funded CRT ever could be). Normally, owners of CRT lead interests can later assign, sell or gift the income interest, including to the charity itself to terminate a non-economical trust (see this website). That’s allowed for an ordinary CRT, but with the QCD-funded CRT income interest being nonassignable, who knows how or if that would work or what the ramifications would be if it happened.

A QCD-funded CRT has another unique feature that is very undesirable. It helps to understand this contrast with an example.  If a taxpayer leaves a $50,000 traditional IRA at death that pays to a CRT, which is thereafter liquidated and reinvested and pays out $90,000 over the individual beneficiary’s lifetime then remainder to charity (the additional $40,000 being subsequently earned capital gains, dividends and interest), the first $50,000 of distributions carries out the ordinary income from the IRA on Forms K-1, but at least the other $40,000 received would eventually be eligible to be taxed at lower LTCG and qualified dividend rates, carrying out that subsequently earned income.  This ‘4-tier’ tax system under IRC Section 664(b) that passes out less favorable income before more favorable income is sometimes referred to as ‘worst in, first out’.

The QCD-funded-CRT is worse than “worst in, first out” (“WIFO”). It’s always just “worst out everytime” (“WOE“)! If someone funds a CRT via QCD with $50,000 and eventually receives $90,000 over their (and/or their spouse’s) lifetime, all $90,000 of distributions would be taxed as ordinary income, even if a portion of this (up to $40,000 in this example) is attributable to long-term capital gains and qualified dividends that would ordinarily be taxed to the beneficiary at much lower tax rates. IRC Section 664(b) is expressly overridden.

Which Charities (and CGAs and CRTs Funded Via QCDs) are Eligible Beneficiaries?

It is not all charities that can benefit from qualified charitable distributions from IRAs, or indirectly via QCD funded CGAs or CRTs. Here is the relevant code section:

 I.R.C. § 408(d)(8)(B)(i)  Which is made directly by the trustee to an organization described in section 170(b)(1)(A) (other than any organization described in section 509(a)(3) or any fund or account described in section 4966(d)(2)), and

The above definition includes public charities but excludes most private foundations and donor advised funds (DAFs).  Families love DAFs as an inexpensive option that allows them to reallocate funds among different charities (albeit with final consent and ultimate say of the sponsoring organization, such as a local community foundation). However, there is nothing in the law that would prevent a CRT provision allowing the family to change remainder beneficiaries to other Section 408(d)(8)(B)(i) qualifying charities.


Charities may see some donors interested in utilizing the new QCD provision to buy charitable gift annuities.  Some smaller charities not offering CGAs currently might consider partnering with a charity such as a larger community foundation that may be able to assist them in this.

Few if any taxpayers, however, will (or should) use the QCD to CRT technique, nor should charities want to market or participate in it. Should a practitioner even waste their time mentioning it? Even if a charity picked up all the trustee and annual accounting costs and responsibilities (which most are not staffed properly or capable of doing), wouldn’t it prefer to simply get an ordinary QCD cash check for less money with far less hassle and liability and concentrate on being a charity instead of being a trust department? CGAs are complicated enough.

It’s hard to see how any of the QCD to CRT complexity strengthens the U.S. retirement system or charities. More so, the opposite.  It just leads to more complexity for IRS and Treasury personnel, IRA custodians, attorneys, accountants and financial advisors (not to mention ordinary citizens), and higher potential for incompetently administered complex transactions and inadvisable depletions of retirement savings. There are much simpler and better ways to encourage charitable giving and not discourage saving for retirement, such as an above the line charitable deduction for cash gifts.



LISI Charitable Planning Newsletter #325 (February 6, 2023) at Copyright 2023 Edwin P. Morrow III. Reproduction in Any Form or Forwarding to Any Person Prohibited – Without Express Permission. This newsletter is designed to provide accurate and authoritative information regarding the subject matter covered. It is provided with the understanding that LISI is not engaged in rendering legal, accounting, or other professional advice or services. If such advice is required, the services of a competent professional should be sought. Statements of fact or opinion are the responsibility of the author and do not represent an opinion on the part of the officers or staff of LISI, nor the author’s employer.


Consolidated Appropriations Act, 2023.  Division T of the Act Contains the Secure 2.0 Act of 2022.


[1] The text of the new changes and the link to the entire bill is here (skip to Section 307 of the bill, pages 885-887).

[2] IRC §408(d)(8)(E)

[3] IRC § 408(d)(8)(D).

[4] IRC § 1411(c)(5).

[5] Uniform Trust Code § 414.

[6] See Estate of Atkinson v. Comm., 309 F.3d 1290 (2002).


Edwin P. Morrow, III, J.D., LL.M., MBA, CFP®, CM&AA® is a Wealth Strategist for Huntington National Bank, where he concentrates on thought leadership and planning ideas for high net worth clientele in tax, asset protection and estate planning areas.  Ed was previously in private law practice working in taxation, probate, estate and business planning. Other experience includes research and writing of legal memoranda for the U.S. District Court of Portland, Oregon as a law clerk. He is a Fellow of the American College of Trust and Estate Counsel (ACTEC). He is a Board Certified Specialist (through the Ohio State Bar Assn) in Estate Planning, Trust and Probate Law, a Certified Financial Planner (CFP) professional and a Certified Merger & Acquisition Advisor (CM&AA). He is also a Non-Public Arbitrator for the Financial Industry Regulatory Authority (FINRA) and a member of the Editorial Advisory Board of the Probate Law Journal of Ohio.  Ed is a frequent speaker at CLE/CPE courses on asset protection, tax and financial and estate planning topics, and recently co-authored, with Stephan Leimberg, Paul Hood, Martin Shenkman and Jay Katz, the 18th Edition of The Tools and Techniques of Estate Planning, a 997-page practice-based resource on estate planning.


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