How Portland General Electric Retirees Can Take Advantage of the Helpful Tax Benefits Legacy IRA's Provide

The spirit of philanthropy often takes root in early life experiences, forming a foundation for how we perceive and engage in charitable giving as adults. My upbringing on a small Wisconsin farm, though modest, taught me the profound value of giving back. My parents, despite their modest means, never hesitated to contribute to the church or support their community. Such foundational experiences have guided my philanthropic journey. I've come to believe deeply in the cyclical nature of giving—the idea that with each act of generosity, we gain something invaluable in return, be it new insights, memorable encounters, or sometimes, even financial benefits.

As we journey through life, the act of giving provides a sense of purpose and meaning to Portland General Electric retirees, allowing us to express gratitude for our own blessings. In the current climate, characterized by significant intergenerational wealth transfers and the rise of the longevity economy, the landscape of philanthropy is evolving. Many Portland General Electric retirees, like myself, are reconsidering traditional estate planning in favor of more purposeful legacy planning. Rather than bequeathing all of our life's earnings to our families, we are exploring ways to balance familial inheritance with meaningful charitable contributions.

A powerful tool that emerged from the SECURE 2.0 Act of 2023 is the 'Legacy IRA.' It provides an opportunity, especially for middle-income Americans, to combine philanthropic intentions with tax benefits and income generation. I hope that by sharing my journey in establishing a Legacy IRA, financial advisors may gain insights into guiding their clients through purpose-driven legacy planning.

The Evolution of the Legacy IRA

As 2022 neared its close, the 117th United States Congress was busy laying the groundwork for a major financial shift: the SECURE 2.0 Act, also known as the Consolidated Appropriations Act of 2023. Among its many provisions was the expansion of the 'charitable IRA rollover.' Initially introduced in 2006, it was designed as a temporary measure allowing individuals aged 70 1/2 and older to make Qualified Charitable Distributions (QCDs) from their IRA. Now, the law permits a once-in-a-lifetime rollover into a plan that guarantees lifelong income payouts.

Understanding the Charitable Gift Annuity (CGA)

Central to the Legacy IRA is the Charitable Gift Annuity (CGA). A CGA is an agreement between an individual and a nonprofit. In return for a donation, the nonprofit commits to providing a fixed income to the donor for their entire life. Upon the donor's passing, the remaining funds are allocated to the specified nonprofit. CGA payouts are determined by several factors, including the age of the donor at the time of the contribution. This arrangement provides donors with a steady income stream while ensuring that their favorite charities continue to receive support in perpetuity.

Studies have shown a rising trend among Portland General Electric retirees leveraging their Individual Retirement Account (IRA) for philanthropic pursuits. As of 2021, individuals aged 70½ and older can directly transfer up to $100,000 annually from their IRA to a qualified charity without it being treated as a taxable distribution. This tactic not only supports charitable endeavors but also provides Portland General Electric retirees with an efficient way to meet required minimum distribution (RMD) obligations. Such strategies can be an appealing combination of financial planning and philanthropy for those transitioning from corporate roles to retirement.

While CGAs have been around for a while, the Legacy IRA offers a novel twist. Rollovers to a CGA are non-deductible gifts. Yet, they can count towards the annual Required Minimum Distribution (RMD), making them particularly advantageous for individuals aged 73 or older. All resulting income from such a CGA is classified as ordinary income.

My Personal Journey to Legacy Planning

I saw the potential in the Legacy IRA and seized the opportunity. With ample savings in tax-deferred retirement accounts and other income sources, I found myself faced with a considerable required minimum distribution, pushing me into a higher tax bracket. By allocating $50,000 of this to a CGA, I could manage my tax liability more effectively. Furthermore, the CGA offers a fixed payout rate, which in my case, at the age of 76, amounted to 6.8% annually on the $50,000.

Steps to Create a Legacy IRA

1. Identifying Charitable Causes:  I selected organizations that I had consistently supported, ensuring that they would continue to receive funding even after my lifetime.
2. Choosing a CGA Administrator:  The Community Foundation of Tampa Bay (CFTB) was my choice. Their efficiency and previous relationship with me made them the ideal partners.
3. Reviewing the Details:  With Crescendo Interactive, Inc., I reviewed the specifics of the rollover, ensuring clarity at every step.
4. Completing the Transfer:  A tax-free Qualified Charitable Distribution (QCD) of $50,000 was made from my Vanguard traditional IRA to CFTB, offering me significant tax savings and setting the foundation for my legacy.
5. Finalizing the Agreement:  With the creation of the 'Kathleen Moore Rehl Legacy Fund,' the commitment to my chosen nonprofits was secured. This fund ensures continuous support to these organizations, extending my philanthropic impact well beyond my lifetime.
6. Receiving the Benefits:  Shortly after, I began receiving my CGA income, solidifying my financial security and marking the successful establishment of my Legacy IRA.

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The Role of Financial Advisors

Financial advisors have a pivotal role in guiding Portland General Electric clients through the intricacies of the Legacy IRA. Clients aged 70 1/2 and above can benefit from the tax advantages, secure lifelong income, and ensure.