Schwab Maps the IRA Move that Funds Charity and Pays You

Why It Matters

IRA‑funded CGAs provide a tax‑efficient way for retirees to turn required withdrawals into charitable income, reducing tax burdens while supporting philanthropy. This expands the toolkit for wealth‑preservation and legacy planning in an aging population.

Key Takeaways

• SECURE 2.0 allows IRA owners 70½+ to fund charitable gift annuities
• CGA payout rates hit 16‑year highs, around 6‑9% for seniors
• One‑time QCD limit rises to $55,000 in 2026, boosting flexibility
• IRA‑funded CGA payments are tax‑free QCDs but generate taxable income later
• Donors must elect CGA once per year; assets become irrevocably charitable

Pulse Analysis

The SECURE 2.0 Act reshapes charitable giving by allowing a one‑time qualified charitable distribution from an IRA to a charitable gift annuity. Unlike traditional QCDs that flow directly to a nonprofit with no donor benefit, the CGA converts pretax dollars into a lifetime income contract while the charitable remainder supports a 501(c)(3). The provision caps the IRA‑to‑CGA QCD at $54,000 for 2025, rising to $55,000 in 2026, and counts against the overall QCD ceiling, offering retirees a dual‑purpose tool for required minimum distributions and philanthropy.

Payout rates for CGAs have surged to their highest levels in over a decade, driven by recent Federal Reserve rate hikes. A 70‑year‑old can expect roughly a 6.3% payout, while an 85‑year‑old may see about 9.1%, translating a $50,000 contribution into $3,500‑$4,500 of fixed annual income. Although these rates trail commercial annuities, the charitable split‑interest structure delivers a tax‑free QCD and a predictable income stream, making it attractive for donors who already intend to give. Studies show that nearly 80% of retirees consider charitable giving a priority, yet only a third know they can leverage appreciated assets in this manner.

Financial advisors must weigh several constraints: the election is irrevocable, limited to a single tax year, and requires immediate payouts of at least 5% within a year. IRA‑funded CGA payments are excluded from taxable income at distribution but become ordinary income when the annuity pays out, influencing Social Security taxation and Medicare premiums. By redirecting required withdrawals into a CGA, retirees can lower adjusted gross income, mitigate RMD pressures, and preserve more of their portfolio for legacy purposes. As the donor base ages, the blend of tax efficiency, charitable impact, and guaranteed income positions IRA‑funded CGAs as a strategic pillar in retirement planning.