Questions About Giving Through Retirement Plans

Unleash Potential From Retirement Plans

Increasing numbers of Americans have taken advantage of retirement savings opportunities through traditional and Roth Individual Retirement Accounts (IRAs). Such plans have proven to be a popular way to help secure their financial future and that of their loved ones.

Many are surprised to learn, however, that their retirement plan assets may also be a source from which to make charitable gifts. Traditional and Roth IRAs offer especially attractive alternatives for some. The following are a number of commonly asked questions about retirement plan giving.

Answers to
Frequently Asked Questions

Q. Who should consider giving IRA assets?
A. If you are at least age 70½ and have accumulated more than you believe necessary for your future retirement needs in a traditional or Roth IRA, you may find that sharing tax-favored assets with charitable interests can be a wonderful way to continue helping others.

Q. Are there benefits when using IRA funds to make gifts?
A. Yes, it is possible for persons age 70½ and older to give any amount up to a total of $100,000 from a traditional or Roth IRA this year completely free of federal income tax. These benefits are only possible for gifts completed by December 31, 2011. It is also possible to make gifts that are retroactive to 2010 if transfers are made by January 31, 2011.

Q. Are there other favorable tax consequences?
A. Through a gift made directly from an IRA, it can be possible to avoid additional taxes on Social Security benefits, and/or increased state income taxes that can be caused by an IRA withdrawal.

Q. How can I receive all the benefits of this new law?
A. Do not withdraw the funds yourself. To be tax free, your gifts must be distributed directly from your IRA by your administrator to one or more qualified charities.

Q. Are there any other requirements?
A. Gifts must otherwise fully qualify for the federal charitable income tax deduction and generally may not be made to a private family foundation or advised fund, and cannot be used to fund a charitable remainder trust or gift annuity.

Q. Can younger persons benefit from retirement plan gifts?
A. If you are over the age of 59½ it may be possible to take withdrawals from an IRA or other retirement plan, such as a 401(k), and use the funds to make charitable gifts. In many cases the charitable income tax deduction will be sufficient to offset any tax that would otherwise be due on the withdrawal.

Q. Can giving a portion of my IRA or other retirement assets to charity also help reduce estate taxes?
A. Yes. Funds remaining in your retirement accounts at death are considered part of your estate for federal (and in some cases state) tax purposes and could result in additional estate tax. Any retirement funds that remain after payment of estate taxes will also be subject to income taxes when received by your heirs.

You could choose to avoid this double taxation by funding charitable gifts with excess retirement funds and leaving other, less heavily taxed assets to loved ones. This ensures that no estate or income tax will be due on any balance remaining in retirement accounts.

Q. Can I leave assets in my retirement plan to charity only on the condition that my loved ones have already been provided for?
A. Yes. You can designate that a specific amount go to any number of heirs before any remaining funds go to charity. Or you can provide for charitable gifts only in the event your spouse or other heirs do not survive you.

Q. How do I make a charitable gift from what might remain in my retirement account?
A. Ask the administrator of your plan for a Change of Beneficiary form. You can then designate one or more charitable interests as a beneficiary to receive all or a portion of your retirement plan assets under the conditions you specify.

Conclusion

We will be happy to provide you and your advisors with more information about ways to incorporate charitable gifts into your retirement planning and other long-range plans.