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Donating retirement plan assets

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A review of donating retirement plan assets taken from the book Visual Planned Giving (2017)

Published in: Economy & Finance
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Donating retirement plan assets

  1. 1. Donating Retirement Assets Professor Russell James Texas Tech University
  2. 2. Donating Retirement Assets 1. Giving During Life Professor Russell James Texas Tech University
  3. 3. Why are retirement assets a big deal?
  4. 4. 36% of all household financial assets ($16.5 trillion) are retirement assets Source: Investment Company Institute (2010) Research Fundamentals, 19, 3-Q1. Because that’s where the money is!
  5. 5. Part I: Giving During Life
  6. 6. Life stages of a retirement account Earlydistribution(before59½) Regulardistribution (59½to70½) Requiredminimumdistribution(after70½)
  7. 7. Giving before 59 ½ Normally, withdrawing retirement plan assets before age 59 ½ creates taxable income plus a 10% penalty IRA $10,000 $10,000income +$1,000penalty $10,000deduction $10,000
  8. 8. Giving before 59 ½ A charitable gift deduction may offset up to 100% of the taxable income from the withdraw, but will not offset the penalty $10,000 $10,000income +$1,000penalty $10,000deduction $10,000 IRA
  9. 9. Giving 59 ½ to 70 ½ After 59 ½ withdraws are taxable, but create no penalty. $10,000 $10,000income $10,000deduction $10,000 IRA
  10. 10. Giving after 70 ½ After age 70 ½ participants must take required minimum distributions (account balance / remaining life expectancy) or pay 50% penalty $10,000 $10,000incomeIRA
  11. 11. Giving after 70 ½ If the income is not needed, a charitable gift deduction may offset the income (if itemizing and no income giving limitations exceeded) $10,000 $10,000incomeIRA $10,000deduction $10,000
  12. 12. Giving after 70 ½ A Qualified Charitable Distribution (QCD) eliminates both the income and deduction $10,000 $0income IRA $0deduction
  13. 13. Qualified Charitable Distribution (QCD) $10,000 $0income IRA $0deduction $100,000 per person maximum Participant 70 ½ or older No private foundations, donor advised funds, charitable trusts, or charitable gift annuities IRAs or IRA rollovers only; no 401(k), 403(b), SEP, SIMPLE, pension or profit sharing plans
  14. 14. Distributions from Roth IRAs are generally not taxed $10,000 $0income Roth IRA $10,000deduction $10,000
  15. 15. Donating Retirement Assets 1. Giving During Life Professor Russell James Texas Tech University
  16. 16. Donating Retirement Assets 2. Giving at Death Professor Russell James Texas Tech University
  17. 17. Part II: Giving At Death
  18. 18. Giving during life v. Giving after death
  19. 19. IRA(child);House(charity) $1,000,000 House $1,000,000 tocharity $1,000,000 IRA -$133,000 (13.3% Cali.incometax) $867,000 -$343,332 (39.6%fed.incometax) IRA(charity);House(child) $1,000,000 IRA $1,000,000 tocharity $1,000,000 House -$0 (noincometax)
  20. 20. Good retirement plan death beneficiaries • A public charity • A private family foundation • A charitable remainder trust
  21. 21. • Charitable Lead Trust must pay income taxes • If estate with charitable instructions is beneficiary, income taxes avoided only if assets used to fulfill a specific or residual (but not dollar amount) charitable bequest • If heirs are also named account beneficiaries, preserving their longer-term payouts requires charitable amount paid out by 9/30 of year after death Bad retirement plan death beneficiaries
  22. 22. Participant’s spouse must approve beneficiary for ERISA accounts, e.g., 401(k), but not for non-ERISA accounts, e.g., IRA
  23. 23. The plan must actually have a residual death benefit to pass to charity, rather than just a lifetime income right
  24. 24. A retirement account with charitable beneficiary can act like a mini-CRT IRA + Charitable Beneficiary • Remainder to charity at death • Income to donor after 59 ½ (unrestricted) • Deduction for entire value placed into IRA • Minor administration costs • Cash transfers only • Limited size Charitable Remainder Trust • Remainder to charity at death • Income to donor for life (fixed) • Deduction for value of charitable remainder • Significant administration costs • Cash or property transfers • Unlimited size
  25. 25. Donating Retirement Assets 2. Giving at Death Professor Russell James Texas Tech University
  26. 26. Donating Retirement Assets 3. Roth Conversions & Charity Professor Russell James Texas Tech University
  27. 27. Roth conversions and charitable planning can work together to match Income Deductions
  28. 28. $1MM in standard IRA (withdraws are taxable) Roth Conversion $1MM in Roth IRA (withdraws are tax free)
  29. 29. Where can I find offsetting deductions?
  30. 30. Where can I find offsetting deductions? Put assets or money into a • Charitable remainder trust • Charitable lead trust (grantor) • Charitable gift annuity • Donor advised fund • Private foundation Or give a remainder interest in a residence or farmland to a charity
  31. 31. Charitable deductions may be limited (with five year carryover) to 20%, 30%, or 50% of income depending on gift and recipient
  32. 32. If I have unused deductions, how can I pull future income into current year? With a Roth conversion
  33. 33. $1MM in standard IRA (withdraws are taxable) Roth Conversion $1MM in Roth IRA (withdraws are tax free)
  34. 34. Roth conversions and charitable planning can work together to match Income Deductions
  35. 35. Donating Retirement Assets 3. Roth Conversions & Charity Professor Russell James Texas Tech University
  36. 36. Help me HERE convince my bosses that continuing to build and post these slide sets is not a waste of time. If you work for a nonprofit or advise clients and you reviewed these slides, please let me know by clicking
  37. 37. All slides are taken from the book Visual Planned Giving Available from Amazon.com
  38. 38. Donating Retirement Assets Professor Russell James Texas Tech University

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