A gift of retirement plan assets can be a surprisingly easy way to reduce potentially very high taxes and provide support to Friends of Yad Sarah.

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 Yad Sarah.

Option 1: Make a tax-free gift with an IRA charitable rollover. 
You can make an immediate tax-free gift by transferring up to $100,000 directly from your traditional IRA to Yad Sarah (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. 

The benefits of an IRA charitable rollover gift include:

  • Satisfying the required minimum distribution.
  • Avoiding income tax on IRA withdrawals.
  • Supporting the important work of Yad Sarah with a tax-free gift.

Option 2: Designate remaining retirement plan assets for Friends of Yad Sarah.
Another attractive option is to designate Yad Sarah as the recipient of some or all of what’s left in your IRA, 401(k), 403(b), or other qualified plan when it ends.    

In addition to having the satisfaction of making a significant gift to Yad Sarah, 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 Friends of Yad Sarah.

In addition to having the satisfaction of making a significant gift to Yad Sarah, 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.
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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 70½ years old
You must start taking withdrawals from your qualified retirement plan once you reach 70½ 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 Friends of Yad Sarah 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.

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.

Example

Aron Kohlberg, 75, is a retired business executive who has accumulated $500,000 in the retirement plan that he set up through his company years ago. He takes minimum distributions from his plan in order to preserve as much tax-free growth inside the plan as he can. At this rate, he expects that his account may still be worth $500,000 when he dies.

Aron has reached the time in his life when he has begun thinking about the legacies he wants to leave behind after he is gone. He decides to leave a bequest to Friends of Yad Sarah to create an endowed fund that will perpetuate generous support in his name. To accomplish his goals, he designates 40% of the final balance in his retirement account for Friends of Yad Sarah.

Benefits

  • There will be no income tax or estate tax on the $200,000 of Aron's retirement plan assets that are transferred to Yad Sarah. If Aron were to pass the same amount to his family and make his charitable gift with stock instead, his family would owe income tax of $74,000 (37% bracket) on the IRA assets, leaving only about $126,000 for their own use. There would be even greater tax savings if Aron's estate was large enough to pay estate tax. 
  • Aron has the immediate satisfaction of knowing that he has put a gift plan in place that will keep his name alive and support Friends of Yad Sarah long after he is gone.