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Gifts of Retirement Assets
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You're considering a gift made after death > You hold a 401(k), IRA, or other retirement plan > You want to ensure the most efficient distribution of the assets in your estate
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Some very important documents you should have
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Photograph, Rutgers/Nick Romanenko
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Your largest asset may be your retirement plan – your 401(k), 403(b), IRA, Keough, or other such accounts. When you plan your estate, it may seem natural to automatically designate a child or other relative as the successor beneficiary of the account after your death, then use other assets to make a charitable gift to the Associate Alumnae of Douglass College.
Note, however, that the IRS considers the balance left in your retirement account to be untaxed income. Therefore, income tax as well as estate tax will be applied to the retirement account balance.
The result of this double taxation? For estates fully subject to the estate tax, up to 70 percent of the value of the retirement plan can be consumed in taxes before your child, relative or friend receives it:
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Here is how it could work. Suppose the balance remaining in your IRA at your death is $500,000, that your estate is subject to 49 percent federal estate tax, and that your heir is in the 38.6 percent income tax bracket:
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IRA
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$500,000
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Less 49% estate tax
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(245,000)
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Transfer to heir
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255,000
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Less 38.6% income tax
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(98,430)
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Net to heir
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156,570
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Total tax %
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69%
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There is a sensible charitable alternative: name the Associate Alumnae of Douglass College as the beneficiary of your retirement plan, and use your other assets, not subject to income tax, to make gifts to your heirs. Since we are a non-profit organization, we will not pay income tax on the distribution (nor will the gift be subject to estate tax). Your heirs will receive other assets of your estate without the burden of extra taxes.
Distributions may be made to the Associate Alumnae of Douglass College outright, or may fund a charitable remainder trust or gift annuity that first pays income to your heirs before benefitting Douglass College.
When you consider a gift from your retirement plan, keep the following points in mind:
- Direct the gift to the Associate Alumnae of Douglass College via your plan’s beneficiary designation form – rather than including the account in your taxable estate, then bequeathing it to us.
- Do not use the balance in your retirement account to satisfy a specific dollar-amount bequest already in your will. Your estate will be treated as having received taxable income in the amount of the bequest paid by the retirement plan assets.
- You may make the Associate Alumnae of Douglass College a partial beneficiary of your plan and direct the balance to your heirs.
- The tax benefits of a lifetime gift from your retirement account are not as favorable as those for a transfer at death. Tax law may change (this website will keep you posted), but at present the IRS taxes withdrawals you make from your retirement account or IRA to fund charitable gifts, and it does not allow tax-free rollovers from your plan into a life-income gift.
How Do I Make a Gift of my Retirement Account Assets?
We recommend getting the advice of your plan administrator and an attorney specializing in retirement planning and charitable gifts.
Then e-mail us, complete the personal illustration form, or call us at 732-932-2880 so that we can assist you through the process.
Associate Alumnae of Douglass College
Office of Gift Planning
181 Ryders Lane
New Brunswick, NJ 08901-8557
732-932-2880 | 732-932-2883 (fax)
E-mail: chamlin@winants.rutgers.edu
Planned Giving content and GiftTree copyrighted © 2008 VirtualGiving.
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