Retirement Plan Assets
IRA accounts, Keogh accounts, Section 401(k) and Section 403(b) plans, and other qualified pension and profit-sharing plans - otherwise known as "qualified retirement assets" - are often considered as gift candidates to the Church or one of its institutions. Retirement plan assets may be gifted during life or at death. The consequences of these choices are quite different.
A gift of these assets during life requires that they first be withdrawn from the retirement plan and transferred to Philanthropies in the name of the recipient institution. Normally the amount withdrawn is fully taxable to the owner of the plan. The resulting gift is then deductible to the extent of 50 percent of adjusted gross income, limiting the extent of charitable tax benefits. Professional advice may be needed to properly consider the impact of any withdrawal, including the possibility of added tax penalties.
The Church or one of its institutions can be designated as the beneficiary of all or a portion of a retirement account at death. A gift of this type provides an estate tax charitable deduction for the value of the amount distributed to the Church or one of its institutions. It also provides important benefits by limiting the tax on income in respect of a decedent. Contact an Philanthropies professional to learn more about this important benefit.
The typical donor:
- Has substantial sources of retirement income.
- Has other assets to pass to heirs.
- Wants to make a substantial gift at death.
Gift features and benefits:
- Estate tax deduction (gift at death)
- Available if needed during life (gift at death)
- Avoidance of taxable withdrawals (gift at death)
- A significant gift to charity (gift during life or at death)
How Do I Make a Gift of Retirement Plan Assets?
To complete a gift of retirement assets during life, counsel with your financial advisor to determine the tax consequences of withdrawing taxable funds (including any early withdrawal penalties). Compare this information with the income tax deduction you will receive from making a gift to the Church or one of its institutions.
To complete a gift of retirement assets at your death, contact your plan administrator and name the Church or one of its institutions as the "primary beneficiary" on the appropriate form provided by your plan administrator. Please provide a copy of the beneficiary designation form to Philanthropies. Philanthropies professionals can provide you with the correct legal name of the Church and its institutions.
How Do I Make a Gift of Retirement Plan Assets Using Gift Planning Tools?
Retirement plan assets can make an ideal gift at death by beneficiary designation. This allows you and your family the reassurance of knowing that if income from the assets is needed during your lifetime, it is available. At your death, the remaining funds in the retirement plan are transferred to the Church or one of its institutions. Retirement plan assets can also be used to fund a life-income gift at death such as a testamentary Charitable Remainder Unitrust. Transferring retirement plan assets to a charitable remainder trust at death can provide tax savings and other benefits to you and your family.
Other Facts You Should Know about Retirement Plan Assets
Retirement accounts are characterized as income in respect of a decedent (IRD). Generally, IRD items are treated as taxable income to the named beneficiary and also included in the estate of the decedent for purposes of determining federal estate tax. However, the IRD tax does not apply to charitable organizations. Therefore, retirement accounts gifted to the Church or one of its institutions at death by use of a "specific bequest" or "beneficiary designation" are fully available for use by the receiving institution.