Qualified Retirement Plan assets are among the most tax-burdened assets you can own. If you die before you have taken most of your distributions from your IRA, 401(k), Keogh, SEP, or other qualified retirement plan, the balance remaining in your plan can be subject to taxes that can claim 75% or more of its value. That said, these assets are a taxwise source of chartiable gifts.
During your lifetime, the law requires that certain minimum distributions be drawn from your retirement accounts after you reach age 70-1/2. These distributions are subject to federal income tax at your current tax rate. Failure to take these required distributions results in a 50% penalty tax on the undistributed amount.
At your death, you can roll over your qualified retirement plan without incurring estate tax to your surviving spouse, who can continue to receive distributions. When your spouse dies, however, any remaining plan assets become subject to multiple levels of taxation:
- Up to 38.6% (rate applicable for 2001 - 2003) federal income tax;
- Up to 50% estate tax (rate applicable for 2002); and
- 50% generation-skipping transfer tax (GSTT) if the distribution is made to a person more than one generation removed from the donor (i.e., a grandchild).
This can create a scenario where only 20 cents on the dollar is available for your family and loved ones. If, however, these assets are donated to Williams College, all taxes may be avoided. There are several ways to donate retirement assets to Williams:
- The easiest way is to name Williams College as the beneficiary of your retirement plan. Simply fill out a "Change of Beneficiary Form" provided by your plan administrator. If your spouse is living, state law may require that he or she sign a "Spousal Waiver of Benefits." Since such gift intentions are technically revocable, no immediate charitable deduction is allowed. Your estate, however, will receive a deduction at your death. In certain circumstances and in connection with a current gift, you may be able to receive current gift credit for the full amount of retirement plan assets designated to come to Williams College upon your death. Contact the Office of Gift Planning for more information regarding this special gift arrangement.
- You can also make withdrawals from your plan as early as age 59-1/2, or use required distributions starting at age 70-1/2, to make a current outright gift to Williams during your lifetime. While such withdrawals/distributions from your plan will be subject to income tax,* you will receive an offsetting charitable income tax deduction for the full amount of your gift (subject to the usual limitations on charitable deductions -- 50% of AGI for cash gifts, 30% for securities), creating a "wash" with no negative tax impact. You can also use withdrawals/distributions to fund a life income gift, although, in this case, your charitable deduction will not be equal to the full gift amount and, therefore, will not completely offset the amount subject to income tax.
* New legislation could include provisions that would allow people age 59 and a half and older to take money from traditional individual retirement accounts and donate it to charity without it being subject to income tax.
For more information, please call (413) 597-3538, email the Williams College Office of Gift Planning, or complete the personal illustration form on this website so that we can assist you through every step of the process.
Appreciated Securities
Bequests
Pooled Income Funds
Charitable Gift Annuities
Charitable Remainder Trusts
Charitable Lead Trusts
Real Estate
Gifts of Other Assets
How to give other assets, such as: Retirement Plans, Charitable Bargain Sales, Closely-Held Stock, Partnership Interests, Tangible Personal Property, and Life Insurance.
