Now that the dust has begun to settle with respect to understanding the retirement plan and IRA changes in the federal law known as Setting Every Community Up for Retirement Enhancement Act of 2019 (the federal “SECURE Act”) that was signed into law in December of last year,  tax planning is underway for the changes that became effective in 2020.  One of these changes– increasing the age from 70-1/2 to age 72 for when required minimum distributions (“RMDs”) must commence from retirement plans and IRAs —  also affects another popular provision — the Qualified Charitable Distribution — that was first added to the internal Revenue Code effective in 2006.  Here’s how things will work starting in 2020:

Although the SECURE Act has eliminated RMDs for persons after they turn 70-1/2 and before they reach age 72, the SECURE Act did not change the eligibility age from 70-1/2 for persons who are eligible to make Qualified Charitable Distributions from their IRAs to charities.  Because Qualified Charitable Distributions are excluded from the gross income of the taxpayer, they still remain a very useful tax saving strategy for persons who will not otherwise itemize their deductions on a Schedule A, due to the increase in the standard deduction amount that was enacted as part of the Tax Cuts and Jobs Act of 2017.  So even for taxpayers who are older than age 70-1/2  but younger than age 72,  if they are making charitable donations in 2020, using their IRA as the source of the donations remains attractive to them in most cases, especially if they won’t be itemizing their deductions and filing a Schedule A with their federal income tax return.  Although no RMDs are required after age 70-1/2 and before age 72 as a result of the SECURE Act, taxpayers can still utilize this charitable giving technique from their IRAs after reaching age 70-1/2, even though the RMD requirement won’t apply to these persons until they reach age 72.  At age 72, they become eligible for the added tax benefit that these Qualified Charitable Distributions are counted toward the RMDs that these taxpayers are required to receive for the year, which is an extra benefit for these taxpayers that kicks in for them at age 72.

Even without the extra tax benefit that starts at age 72, the tax advantage of using your IRA to fund charitable donations remains under IRC 408(d)(8) for taxpayers (who won’t be itemizing their deductions on Schedule A)  after they turn 70-1/2.  And since the state income tax in Connecticut works off of the federal Adjusted Gross Income as a starting point, the tax savings that is achieved for federal income tax purposes flows through for Connecticut income tax savings, too.