Ways To Give

Gifts of Retirement Plan Assets

The Pension Protection Act of 2006, signed by President Bush on August 17, 2006, contained charitable giving incentives including the IRA Rollover, which allows individuals to transfer funds tax-free from an IRA (or a ROTH IRA) to a charitable organization.

Requirements for gifts under the new law include:

  • Gifts must be completed by December 31, 2007;
  • The IRA owner must be age 70 or older at the time of the distribution;
  • Gifts may not exceed $100,000 per taxpayer per tax year;
  • Distributions must be made directly by the IRA trustee to a charitable organization;
  • Gifts must be made in a way that would otherwise be fully deductible.

If you qualify to make a charitable gift under the new law, you will not be required to report the IRA distribution as taxable income. However, you will not be entitled to claim an income tax charitable deduction for the gift.

Under the new law, individuals over age 70, who must make mandatory withdrawals from their retirement plans, can use the withdrawal to make a significant charitable gift without incurring income tax consequences.

Unfortunately, the new law does not permit a tax-free transfer for a deferred charitable giving arrangement such as a charitable gift annuity or charitable remainder trust.

Charitable Gifts From Traditional Retirement Plans


Every year, Americans transfer millions of dollars into IRAs, 401(k)s, 403(b)s, and other traditional qualified retirement plans. The funds in these plans enjoy tax deferral on both contributions and earnings during the participant's lifetime. This enables these funds to grow much more rapidly than savings or investments that are taxed currently.

But did you know that if you name someone other than your legal spouse as beneficiary of your retirement plan assets, he or she may receive as little as 25 cents on the dollar after income and estate taxes are paid?

That is because when someone participating in a traditional retirement plan dies and the funds remaining in the plan are distributed, the funds pass to their estates as "IRD" income—"income in respect of a decedent." IRD assets are subject to both income and estate tax.

If you name your spouse as your designated beneficiary, the estate tax is avoided because of the unlimited marital deduction and a spouse may rollover the funds tax-free to his or her own IRA, thereby avoiding income tax. However, the assets may then be taxed in the surviving spouse's estate. The withdrawals by the spouse are then taxed as received.

Designation of Charitable Beneficiary


You can designate the IBF as a beneficiary to receive all or a stated percentage of your retirement account upon your death. Your estate will receive a charitable deduction for the value of the assets distributed to the IBF, and since the IBF is a tax-exempt charity, it will pay no income tax on the distribution.

Traditional retirement plans are one of the best assets to leave to charity because they can escape income and estate tax. If possible, leave other assets to family or loved ones.

Charitable Gift During Life


While an IRA or traditional retirement account cannot be "rolled-over" tax-free to a charitable organization under current law, it is still possible to use these funds to make charitable gifts.

If you make a gift to the IBF using retirement account assets during your lifetime, the transfer is treated as a withdrawal, making the distribution subject to income tax. However, itemizing your deductions makes you eligible for an income tax charitable deduction, mitigating the tax burden.

If you have any questions or need additional information, please call the planned giving department toll free at 1-800-279-8772 or contact us online.

We recommend consulting with your attorney or tax advisor about the various tax benefits and restrictions that may apply to your specific situation. We are available to you and your advisors to answer questions or help arrange a planned gift to the IBF. The IBF's future programs depend on the partnerships we form today.

 

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