A gift of retirement plan assets can be a surprisingly easy way to reduce potentially very high taxes and provide support to St. Lawrence University.
A gift of retirement plan assets could be right for you if:
You have an IRA or qualified retirement plan, such as a 401(k) or 403(b).
You do not expect to use all of your retirement plan assets during your lifetime.
You have other assets, such as securities and real estate, that you want to pass to heirs.
You may want to provide payments to loved ones after you are gone.
You would like to make a bequest gift to St. Lawrence.
Option 1: Make a tax-free gift with an IRA charitable rollover (New as of 12/18/15)
You can make a tax-free gift from your traditional IRA (other qualified retirement plans such as 401(k)s and 403(b)s are not eligible). You must be at least 70 ½ years old to take advantage of this opportunity. To ensure your gift is tax-free, the gift must be transferred directly from your IRA administrator (Fidelity, Charles Schwab, Vanguard, etc) to St. Lawrence University. The total of all of your rollover gifts in any one year cannot exceed $100,000 per person. A spouse with a separate IRA could also make similar gift(s) totaling up to $100,000 if they otherwise qualify. Here are the steps to this process:
Typically you will be asked to provide three pieces of information.
SLU’s Address: St. Lawrence University, Office of Planned Gifts, 23 Romoda Drive, Canton, NY 13617
SLU’s Federal Tax Identification Number: 15-0532239
Amount of IRA Charitable Rollover gift to SLU: $
In most situations, your IRA administrator will issue a check with the memo line indicating it is from your IRA account. The check will then be mailed directly to St. Lawrence’s Office of Planned Gifts.
Upon receipt, St. Lawrence’s Office of Planned Gifts will send you a letter that acknowledges your IRA Charitable Rollover gift was received and the purpose designated for the gift.
The benefits of an IRA charitable rollover gift include:
Satisfies the required minimum distribution but is not included in taxable income.
Avoids income tax on IRA withdrawals.
Supports the important work of St. Lawrence with a tax-free gift.
Option 2: Designate remaining retirement plan assets for St. Lawrence University
You designate on your IRA or qualified plan beneficiary designation form the beneficiary of all or a portion of what remains in your retirement plan when the plan ends.
In addition to having the satisfaction of making a significant gift to St. Lawrence, your benefits include:
Making a gift completely free of federal and state taxes that can total 37.0% or more, if your estate exceeds the applicable exemption.
Preservation of non-retirement plan assets for family.
Option 3: Designate remaining retirement plan assets for a life income plan
Alternatively, you can designate that some or all of the assets remaining when your IRA, 401(k), 403(b), or other qualified plan ends be used to fund a gift arrangement that will make payments to family members or other loved ones for the rest of their lives. When the gift arrangement ends, what is left will go to St. Lawrence University.
In addition to having the satisfaction of making a significant gift to St. Lawrence, your benefits include:
Potentially saving federal and state taxes.
Preserving non-retirement plan assets for family.
Providing payments to family or other loved ones for life.
Because everyone’s situation is different, we encourage you to seek professional legal, estate planning, and financial advice before deciding on a course of action. This information does not constitute legal or financial advice and should not be relied upon as a substitute for professional advice.
IRAs and qualified retirement plans Retirement plan assets are a major source of wealth for many households. For example, you may have hundreds of thousands of dollars invested in your IRA, 401(k), 403(b), or other qualified retirement plan. These plans do not pay tax on the income and capital gain realized by their investments. This allows their assets to grow faster than if you held and invested these assets outside of your retirement plan.
The primary purpose of your retirement plan is to provide you with income during your retirement, but it can also be an excellent source of funds for making charitable gifts during your life and when your plan ends.
Withdrawals are taxed as income With the exception of the Roth IRA, the money used to fund a qualified retirement plan, such as a traditional IRA, 401(k), or 403(b), has never been taxed. Also, earnings that occur within a qualified retirement plan are not taxed. As a consequence, withdrawals from any of these plans (except for the Roth IRA) are taxed as ordinary income. Your federal income tax alone on a withdrawal from one of these plans could be as high as 37%.
Withdrawals are required once you reach 70 ½ years old You must start taking withdrawals from your qualified retirement plan once you reach 70 ½ years old. The amount you must withdraw each year is a percentage of the value of your retirement plan as of the last day of the previous year. The percentage starts below 4% for someone who is taking their first “required minimum distribution” and increases with age according to a schedule published by the IRS.
Taxes on remaining retirement assets can be very high Your family members and other heirs will have to pay income tax on any distributions they receive from your retirement plan after you are gone. In addition, your qualified retirement plan is included in your estate, so if your estate is large enough to owe estate tax, your plan may increase the estate taxes you owe.
Federal income tax alone can be 37%. When you add federal income tax and estate tax together, they can total 62% or more. In states that assess their own taxes on estates, the total taxes on retirement plan assets paid to heirs can be over 62%.
Give retirement plan assets to St. Lawrence University and save taxes In contrast to your retirement plan assets, your estate will not owe income tax on most of its other assets in addition to estate taxes that may be due. As a result, your estate and heirs will pay lower taxes if you pass your less heavily taxed assets to your heirs, and give your retirement plan assets to charity. Paying lower taxes will mean that more assets will reach your heirs. How much more will depend on the size of your estate, where you live, and the type of gift you make.
How do I make a gift of retirement plan assets to St. Lawrence? You have several good options to make a gift of your retirement plan assets to us.
Option 1: Make a tax-free gift today with an IRA charitable rollover You can make a tax-free gift by directing the administrator of your traditional IRA or Roth IRA to transfer funds directly from your plan to St. Lawrence. You can instruct your IRA administrator to transfer the funds directly to St. Lawrence or to send you a check that is made out to St. Lawrence University.
When you make an IRA charitable rollover gift, you won’t need to include the transferred funds in your income for that year and therefore will not pay any tax on them. If you were to withdraw the funds yourself and then make a gift to us, you would have to include the withdrawal in your income. Even if you take an offsetting income tax charitable deduction, the result could be more income tax for you to pay overall. You cannot make a IRA charitable rollover gift from other qualified retirement plans, such as SIMPLE or SEP IRAs, 401(k)s, or 403(b)s.
Another great feature of an IRA charitable rollover gift is that it counts toward the amount you are required to withdraw from your IRA for the year (your “required minimum distribution”), If you don’t need these funds for your own use, you can use them to make gifts to St. Lawrence and your other favorite charities and avoid paying income tax on these withdrawals.
The benefits of making an IRA charitable rollover gift include:
Your withdrawal is not included in your income so it doesn’t affect your taxes.
Your withdrawal counts toward your required minimum distribution for the year.
You have the satisfaction of providing immediate support to St. Lawrence.
There are several requirements you must meet in order to make an IRA charitable rollover gift to St. Lawrence:
Your distribution must be from your IRA or Roth IRA.
You must instruct your IRA administrator to make a distribution directly to St. Lawrence.
You must be at least 70 ½ years old.
The total of all your qualified charitable distributions for the year must be no more than $100,000.
Your distribution cannot be made to a donor advised fund, private foundation, or supporting organization.
You cannot receive any benefit in exchange for your gift.
Option 2: Designate remaining retirement plan assets for St. Lawrence University The simplest and most common way to give retirement plan assets is to make our organization a designated beneficiary of your retirement plan. All you need to do is file a new beneficiary designation form with the administrator of your retirement plan that designates our organization as a beneficiary of your plan. Your designation should name the percentage of the assets that remain in your plan when it ends that you want us to receive.
The retirement plan assets that you designate for us will avoid all income tax and estate tax. In order for your estate to enjoy both of these tax benefits, it is very important that you make our organization the designated beneficiary of these retirement plan assets, not your estate.
Please identify us on the form with our legal name: St. Lawrence University, 23 Romoda Drive, Canton, NY 13617 and include our Federal Tax Identification Number: 15-0532239
Option 3: Designate remaining retirement plan assets for a life income plan Another option for passing retirement plan assets to us is through a life income plan. Passing assets to us through a life income plan allows you to provide income to your loved ones after you are gone and then provide support to us. Here's how a life income plan works:
Your retirement plan transfers the designated portion of its final balance to the life income plan that you have indicated on your beneficiary designation form.
The heirs you have chosen receive payments from the plan each year, typically for life.
When the life income plan ends, its remaining principal goes to support St. Lawrence University.
Using retirement plan assets to fund a life income plan postpones income tax and reduces estate tax on these assets, if your estate is subject to estate taxes. A typical result is to reduce total taxes on your retirement assets by more than half compared to distributing them to your heirs through your estate.
Life income plan options There are several life income plan options to choose from. The one that is right for you will depend on a variety of factors. Please contact us if you would like to learn more about funding a life income plan with assets from your retirement plan.
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