Should You Set Up a Legacy IRA?

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It's an opportunity to partner with companies that align with your values and are making a positive difference in the world. Learn more at eventideinvestments.com Hi, I'm Rob West. If you're not familiar with the latest variation of the individual retirement account, it wouldn't be surprising.

It's only gone into effect this year. We'll talk about the Legacy IRA today. Then it's on to your calls at 800-525-7000.

That's 800-525-7000. This is faith and finance, biblical wisdom for your financial journey. Okay, so first we should point out that the Legacy IRA is really a traditional IRA. The difference really being in how each is used. Obviously, the traditional IRA provides income directly to retirees as they take distributions. A Legacy IRA also provides income to a retiree, but indirectly through the use of a charitable gift annuity or CGA.

Now, we've talked about those before, but here's a quick refresher. A CGA is an agreement between a donor and a non-profit organization. The donor gives assets to the non-profit. The non-profit then gives the donor regular payments for life based on the value of the assets donated. When the donor dies, the non-profit keeps the assets. So the CGA is a form of planned giving that's actually been around for more than a century and has greatly benefited churches, ministries, and missions over the years.

It gives donors the assurance that their gifts are used in ways that align with their Christian values while still providing income while they live. Now, the charitable gift annuity has always offered tax deductions for the donor, both on the lump sum gift and the regular annuity payments, but with one huge limitation. They could only be made with after tax dollars before the donor's death.

And here's where the IRA comes back into the picture. If you had a qualified retirement account, such as an IRA or 401k that you funded with pre-tax dollars, you could not use those funds to set up a qualified charitable annuity. That cut out many believers who would have liked to set up a CGA with their favorite ministry, but their assets were all tied up in a traditional IRA. They would have to withdraw those funds and pay taxes on them before they could contribute to a CGA. Well, that all changed with the secure 2.0 act passed in December. It created what is now called the legacy IRA and the ability for folks over age 70 and a half with a traditional IRA to take advantage of the charitable gift annuity. So here's how it works.

And I apologize for the alphabet soup because we now have to add one more ingredient. The legacy IRA is really more of an amount than a separate retirement account. Under the new law folks, 70 and a half can take up to $50,000 from a traditional IRA and make a one time qualified charitable distribution, meaning the money comes out untaxed and set up a charitable gift annuity.

So IRA to QCD to CGA. If you want to do this, but all of your funds are still in a 401k, you simply have to roll them over to an IRA and that would then become your legacy IRA. But again, you can do this only once in your lifetime and the limit is $50,000. The law requires that the annual payout from the charitable gift annuity be at least 5%. Now there are many potential benefits with using IRA funds to set up a charitable gift annuity. It allows donors to increase their giving and ensure their future giving matches their values. It lowers the donors tax liability in the year the CGA is funded by excluding the amount of the gift from taxable income.

It could satisfy all or part of a required minimum distribution. It sets up steady lifetime payments to the donor or donor and spouse. The minimum 5% return in annual payments is competitive with historic CD rates and government bonds. There is typically no cost to the donor to set up and administer the CGA. The nonprofit holding the funds will do all of that. So just who's using these new legacy IRA provisions to set up CGAs? Well, folks over 70 and a half with appreciated stock or mutual fund shares who want to reinvest some of those assets to generate more income without paying capital gains taxes. Also those who want fixed lifetime payments unaffected by the markets and those who want to ensure continued payments to a loved one without going through probate.

In the past, the inability to use pre-tax dollars to set up a charitable gift annuity was a major obstacle to small donors. That obstacle is now removed. I hope this has been helpful to you. Your calls are next. The number 800-525-7000.

We'll be right back. Objectives, risks, charges and expenses of Guidestone funds before investing. They're distributed by four side funds distributors, LLC, which is not an advisory affiliate, a registered investment advisor, nor do they provide investment advice. If you enjoy this radio program, you're going to love all of the many different resources waiting for you at FaithFi.com and the FaithFi app. You'll find powerful wisdom, free podcasts, articles, videos and more from leading voices such as Randy Alcorn, Howard Dayton, Ron Blue and our own Rob West. Grow in wisdom and knowledge by connecting with a community of thousands of Christians striving to be good and faithful stewards at FaithFi.com or by downloading the FaithFi app. Welcome back.

This is Faith and Finance. I'm Rob West. We're taking your calls and questions today. We'd love to hear from you. The number to call 800-525-7000. I've got several lines open. 800-525-7000. You can call right now.

Let's head to a beautiful West Palm Beach. Hi, Karen. You go right ahead. Yes.

Hi, how are you? Thank you for taking my call. Yes, ma'am.

Yes. So I have two car loans. One is my own loan that I took it back in 2020. And the other one is another loan, another car loan for an older car. And I co-signed for my son and that was back in October.

So I have two questions. So the first one is, could I have my son take over the second car loan just under his name? And if so, how do I go about doing that? Yeah, they're not going to release him from that car note or release you just because they don't have to. So what would have to happen is he would have to qualify to refinance it on his own. Now, I suspect the reason you co-signed is he either didn't qualify on his own, or if he did, the rate was much higher than it was with you being added to it. But the lender now has recourse to both you and your son in the event that the note is not paid. And there's no incentive for them to let you out of that responsibility that you signed for. So what would have to happen is he would have to try to refinance this car note with another lender or the existing lender, but with a new note without you, meaning it's going to rely on his income, his credit score, that type of thing. And if he can do that, then that would be the way to get you out of it. But the lender is not just going to release you because that's not to their benefit.

Yeah. So I guess we have to ask the lender, right? It was his first car. He's just turned 20 right now, and at the time he was just working part time. He got a great credit score. He has been with, you know, and I'm thinking that he may qualify for that.

Yeah, he may. What is the car worth? Do you know? Yes, it's under $7,000. You believe you could sell it today for $7,000?

No, I'm thinking that that's no. He loves that car. That's what it's worth right now. That's the balance on the car. Okay, so that's the balance on the car note. Do you have any idea what it's worth if you were to try to sell it? I understand he wants to keep it, but what is the value of it? Oh, I don't know.

Okay. Well, that would be really important because the factors here are, yes, his credit score is important. I understand he was just getting started and now he's got some documented income and, you know, he's been working for a while now.

That's good. But the other big factor is just what is the value of the car versus the loan value. So if the car is worth $12,000 today, and he's got a $7,000 loan on it, that's great. If it's worth $5,000 and he owes $7,000, that's going to be difficult to refinance because it's upside down. So that's going to be another key factor here is just what is this car worth versus what's owed on it. But assuming it's worth more than he owes and he now has a good credit score and he's got a good income and he doesn't have too much other debt. So his debt to equity ratios and debt to income ratios are good, then there's no reason he shouldn't be able to qualify on his own.

What he would need to do is go online to LendingTree or any one of those websites that could find who has the best rates right now for refinancing used cars and he would apply to refinance it and then he could potentially qualify under his name. Now, the only other consideration is the interest rate. Do you know what the current interest rate is? Yes. So for the second loan, since I co-signed, they hit us up with 10% interest rate on that second car. The one that you co-signed for? Yes, yes.

Okay. Yeah, so that's really high. So, you know, he should hopefully be able to get that down. Again, assuming he has got a good credit score, he's got good documented income, not too much other debt and he's not upside down. You know, he should be able to get a refinance rate. If you have excellent credit, you can find them in the fives right now, but certainly less than 10. So I would say that's the next place for him to go is to do some research, you know, whether that's at LendingTree or RateGenius or Bankrate. He can find the companies that are offering the most competitive rates and terms right now for refinancing used cars and then try to qualify on his own and that would be how he could get you out of it. Okay.

And then the second question, thank you for that. My first car loan, it's not my first car loan, but my original car loan back in 2020, I am at 3% interest rate on that one, but I want to see, I have had it for at least three years, but I want to see if I can refinance. Why?

What are you looking to accomplish? To lower down, to lower the monthly car payments. Yeah, if you're at 3%, you're going to go up, not down. Those car payments are going to get more expensive. You've got a great loan there and there really is no way to lower that unless you're going to extend it out into a longer term, but even by extending it. So let's say you had a five year notice, 60 month loan and you're down to only three years left and you did a new five. The challenge is, although that would typically bring that car payment down by extending the term, your rate is probably going to go up a couple of points at least from three to 5%. So you're probably going to lose all of your savings.

So I would just stick with that loan, try to pay it off as quick as you can and do that by going back to your budget, your spending plan and looking to eliminate any expenses that you can so you can apply more to principal reduction. Thanks for your call today. We appreciate it. May the Lord bless you.

Let's head next to Chicago. Hi Ann, go right ahead. I'm retired at this time and I do have an annuity, but my company is stating that it has a 10 year maturity, right? But I need four more years until it matures. I do receive social security and what they're offering me from the company that holds my annuity, it's a little tight regarding my mortgage and other things. Do you think that I should try another company and see if I could get more out of the annuity at this time, but it still has another four years old?

What should I do? Yeah, it would be worth looking into and you might find that it just doesn't make sense and you should wait it out. This would really be a great opportunity for an advisor to look into this. The problem or one of the challenges I guess I should say with annuities is they're very complex and there's a lot of fine print and so you've just really got to understand what type of annuity do you have?

How does the surrender charges work? Just a host of factors there to consider whether it would make sense to exit early or to wait it out. And then what alternatives exist for you to replace this annuity with to make sure that you're actually improving your situation, especially if it's going to cost you something. Do you have an advisor that you trust that can help you look this over? Not at this time really.

Okay. Well, if you're comfortable using the internet, I would head to our website at faithfi.com and click find a CKA and interview a couple of certified kingdom advisors. There's some wonderful CKAs there in the Chicagoland area. Find one that could help you analyze what you have, decide whether it makes sense to exit and then look at alternatives for where you could redeploy that money.

I think that'd be your next best step because I wouldn't be able to weigh in on the specifics of whether or not it makes sense to pull it out without reviewing all the documents. But I do appreciate your call today. I think this is worth looking into and I'm sorry I couldn't give you more specific information.

God bless you and we'll be right back. My grocery bill went up 11 percent this year. Gas, utilities, rent all went up, but my paycheck the same. I also pay for my own health care, a huge expense. A friend recommended Christian Health Care Ministries as an option to insurance and CHM helps pay for medical needs while allowing some breathing room in my budget. Open enrollment is here, so make the switch today with potential cost savings up to 40 percent.

Christian Health Care Ministries at chministries.org slash faithbuy. We're back. I'm Rob West and this is Faith and Finance. Thanks for listening today. Thanks for taking the time as we head into our calls and questions. I want to take a moment to ask you if you've downloaded the Faithfy app.

You can use it on your desktop or your mobile device. All right, let's head to the phones. By the way, if you have a question, just call 800-525-7000.

That's 800-525-7000 to Akron, Ohio. Tom, thanks for your patience, sir. I understand you have a testimony. Go right ahead. Yes, sir. First, may God continue to bless your ministry as you reach out to the multitudes.

I have a situation. My son's about 40 years old right now. He's serving God, going to become a foster parent.

He's given his life as a young child to God. I had an opportunity when he was about four years old to teach him the principle of tithing. So I took ten little squares of paper. I laid them there on the floor and he got down beside me. I said, I want you to look at something. God's given you ten squares. I said, you know what he asked from you? He looks at me and says, what? What's he want, dad? I said, he wants one little square. Would you be willing to give that to God? He said, oh, I'd like to give it to God. He reached over and he pushed it over separate from the others.

There was nine and one. He said, Dad, can I give him another one? I said, you can. I said, that would be called an offering. He said, whoa, I'd like to give him two. I said, Anthony, you could give him two and that's a good offering. He said, Dad, can I just give them all to God?

And I said, Anthony, that is what he's wanting from us. This young man, this young man had an opportunity. He took $100 coin. He put it out there on the marketplace. He felt compelled to give it to a missionary friend of his up in Alaska. He met the gentleman. He told him, he says, this coin's for $100. He said, I'm going to give it to my friend who's a missionary in Alaska.

The man looked at him. He says, I'm not only going to buy that coin for $100. He said, I'm going to buy that coin for $200.

He said, here's an extra $100 from me. That's what God does and that's what your ministry's all about. I know that. Oh, that's great. Well, thank you for sharing that story, Tom. That's powerful.

Yeah, it really is. Hey, I've got a real quick question on whole life and it doesn't matter what I do with it. I've got a $20,000 whole life policy. I paid about $200 and something and $225, I think, a year.

I got it way back in the day. I'm thinking about cashing that thing in and just going ahead and putting it in a CD. If I get 5% and I do that, I'm thinking several thousand dollars on down the road, I'm going to have what it's worth anyhow.

Right now, it's worth about $12. So any thoughts on that? Yeah. Tom, are you still working?

Yeah, I'm going to retire next February. Okay. So if something were to happen to you, if the Lord calls you home, is there anybody depending upon your income at this point? Absolutely not.

My wife and I, God has blessed us and we're set. Yeah, that's great. So yeah, you don't need this policy and I think you could do better elsewhere, especially with you owning it so long. There shouldn't be any kind of surrender charges or penalties. So I think taking this money, shoring up your emergency fund, whether in a high yield savings or putting it in a CD and as you said at five and a half makes a lot of sense to me.

I don't think there's any need for you to have a life insurance policy at this point. I totally agree. Thank you so much for your time and God bless. All right, Tom. God bless you, my friend. Thanks for your kind remarks about the program.

To Indianapolis. Hey, Lee, go right ahead. Yeah, Rob, I just had some questions. I've got a property I'm putting up to rent as being a landlord. People have been mentioning that maybe it's best to put it in the LLC, but I really don't know much about them. I didn't know if you had any insight.

Yeah, I'd be delighted to. It's a business structure that combines the limited liability benefits of a corporation and the tax features of a partnership. And they are very effective for a situation like you're describing with an investment or a rental property. For instance, one of the main benefits that folks will use them for is limited liability. So if you have more than one property, you'd create an LLC for each one. If you have just one, you'd create a single LLC. But this would be such that if a lawsuit was brought against the LLC, only those assets of the LLC would be at stake and you would be able to protect that.

Now, there is a way that, you know, that's not foolproof or guaranteed. In certain circumstances, a plaintiff could what's called pierce the corporate veil and hold a member, which is what you would be to that structure. The LLC holds you liable personally for debts and obligations of the LLC.

But in most cases, it does provide that liability protection. So it limits the protection just to the assets of the LLC. It's also a pass-through taxation entity. So unlike a C Corp, it's not going to be subject to double taxation. And then there's a few other benefits as well with regard to a multi-member LLC where you have different, you know, let's say you own this property with other people.

Each member could report a specific portion of the LLC's business income on or losses on their personal tax returns. And then there's more flexibility than you would have with a corporation and a partnership. There are some costs to setting it up. So you'd have to, you know, get with an attorney to create it and you'd have to go to your state's secretary of state website to find out what fees are associated with forming it.

And then there's other ongoing and annual fees as well. But I would concur with the advice you've been getting that for somebody in your situation, it can make a lot of sense, most notably from a tax standpoint and a liability standpoint. Okay, I'm glad you mentioned the attorney. Someone said you'd possibly go online and find it and do it where people have done it their self or go through an attorney who would be able to kind of cross the T's and dot the I's, make sure everything is legal since I've never done anything like this. So an attorney sounds reasonable and it appears today would be able to lead me through even not only their price points for doing it. But maybe other costs. That's exactly right. They'd be able to give you the full rundown. And I would agree with you.

Absolutely. You can do it online. You can find templates for a will and creating an LLC and a lot of things. You can DIY it. I just think with something like this, I like your thought about dotting the I's and crossing the T's, having somebody that can ask you a series of questions and just set this up exactly the way you need to.

So I think the benefit of an attorney here makes a lot of sense. Lee, all the best to you, my friend. Thanks for being on the program today.

Well, once again, our time went by way too fast. But tune in next time and we'll do it all over again. Before we go, I'd like to thank our incredible production team, Amy, Devin, Jim, Robert, Brandy, Rob and Ben. Couldn't do it without them. Have a great rest of your day and I'll see you again next time for another edition of Faith and Finance. Faith and Finance is provided by Faith Buy and listeners like you.