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Gift of Retirement Assets

Photo of Leslie Van Peteghem, alumna of the Lyles College of Engineering who works at the Edwards Air Force Base

Qualified retirement plan assets, including Individual Retirement Accounts and most 401(k)'s, are often particularly well-suited for planned giving. Employer sponsored retirement plans and private funds (such as an IRA) can be gifted easily by designating Fresno State as the final beneficiary or as beneficiary of a percentage of the account.

Such a gift can avoid significant estate and income taxes for the donor's heirs, who would otherwise have to pay the deferred taxes. In fact, at the time your assets pass to the next generation, proceeds of retirement plans can be among the most heavily taxed assets in your estate.

Because they can accumulate rapidly, retirement accounts are fast becoming a primary source of funding for charitable gifts to Fresno State. Taxes and complex rules that govern retirement accounts require particular attention to the opportunities for charitable giving from these assets.

Tax-qualified retirement plans, 401(k)'s, individual IRAs and the newer Roth IRAs all represent wonderful charitable opportunities. Roth IRAs are discussed separately below.

Why Are Tax-Qualified Retirement Plans Often Called "Tax Traps"?

Although tax-qualified retirement plans and IRAs are important and effective vehicles for accumulating retirement savings, that picture changes once you have retired. Distributions from the accounts are generally taxed as ordinary income. Required minimum distributions increase each year after age 70½, forcing you to shrink your tax-advantaged account and pay taxes – even if you don't need the income at that time.

The income taxes on distributions continue for a spouse or heirs who inherit your retirement accounts. Required distributions for your heirs may be forced during pre-retirement, potentially causing heirs to pay taxes on distributions during their peak wage-earning years. Because retirement assets are subject to estate and generation-skipping taxes for transfers to non-spousal heirs, the combination of these transfer taxes and the income taxes can exceed 80%!

Note: It is generally not recommended that you list "my estate" as the beneficiary of retirement plan assets, or that you use these assets to satisfy a specific monetary bequest in your will; this may have severe adverse tax and other cost implications. As always, consult your advisors to learn what will be best for your individual situation.

What Are the Financial Benefits of Making an Estate Gift Through My Tax-Qualified Retirement Account or IRA?

Designating Fresno State as the beneficiary of a retirement account causes the charitable gift to be deductible for estate tax purposes. Also, heirs may prefer to receive assets that are less highly taxed, leaving the retirement assets instead to charity. A tax-exempt charity will not have to pay the income taxes otherwise due and will therefore enjoy the full value of the gift.

You may prefer to designate retirement assets to a charitable life income arrangement (such as a gift annuity or charitable remainder trust) that will pay income to your heirs and eventually benefit Fresno State. Your arrangement can be customized to provide a guaranteed income for life, accumulate over time (both income and assets), or provide flexibility in the timing and amount of distributions to the beneficiaries.

What Are the Financial Benefits of Making a Lifetime Gift Through My Tax-Qualified Retirement Account or IRA?

Generally, an income tax charitable deduction is available for the charitable gift, offsetting the income taxes generated by the distribution. Sometimes the charitable tax benefits may be less than the income taxes due, especially if the gift is made via a life income arrangement or other "split benefit" form of contribution. Required distributions after age 70½ can create an unwanted tax burden. It can make sense to use these required distributions to fund charitable gifts and earn income tax deductions.

What Are the Financial Benefits of Making a Lifetime or Estate Gift Through My Roth IRA?

Distributions from a Roth IRA are generally not taxed. You may fully benefit from the available tax deductions for gifts from a Roth IRA. These assets are also a great source for funding a charitable gift annuity and securing an income that is guaranteed to last for your lifetime.

How Do I Make a Gift From a Retirement Plan or IRA?

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