Retirement Plan Gifts

Special Tax-Free Gift Option Expires

For a number of years beginning in 2006 it was possible for persons over the age of 70½ to make tax-free gifts from a  traditional or Roth IRA to qualified charitable interests.

This provision in the law expired at the endof 2011. Check with us or your advisors to discover whether Congress has since acted to once again allow this special way to give.

Making Gifts Today

You may find that your retirement plan can also be a convenient "pocket" from which to make charitable gifts to Webster University each year.

If you are over the age of 59½, and can make withdrawals from your traditional IRA or other tax-favored retirement plan without triggering an "early withdrawal" penalty, you may wish to make withdrawals from retirement plans in amounts sufficient to fund all or a portion of your charitable gifts. Those over the age of 70½ who are required to take mandatory withdrawals from retirement accounts that are not needed to fund current living expenses may also wish to make their gifts in this way. 

Although you will be required to report the income on your tax return, when you itemize your deductions you are allowed a corresponding charitable deduction for your cash gifts up to 50% of your adjusted gross income (AGI).

If you are able to deduct the full amount of the gift/withdrawal, this can amount to a "wash" for tax purposes and ensure these funds will, in effect, never be subject to gift, income, or estate taxes.

You should seek assistance from your accountant or other advisor when determining the optimum amount to give from retirement plan accounts under federal and state tax laws.

Avoid Double Taxation

You also may want to consider including charitable gifts as part of your plans for the future distribution of any balances remaining in your retirement plans at the end of your lifetime.

Because they are included as part of one's estate at death, the assets in tax-favored retirement plans such as an IRA, 401(k), SEP, and others can be subject to federal and/or state estate taxes.

In addition, when heirs receive the balance of retirement plans after payment of estate taxes, income tax will also be due—up to 35% or more—depending on state income taxes and other factors. Thus, the combination of income and estate taxes that could eventually be levied on retirement accounts may, in some cases, amount to 50% or more of an account's value.

Rather than allowing retirement assets to be reduced by a combination of estate and income taxes, you can direct that such assets be used to fund charitable gifts from your estate. This can actually result in more assets being received by loved ones than if retirement assets were left to family and charitable gifts were made from other funds.

Additional Details

To qualify for the benefits of making gifts in this manner, it is important that tax-free gifts from your IRA not be withdrawn by you, but instead be distributed directly to one or more qualified charities from your IRA. Check with your IRA administrator or other advisors for more information.

*Gifts must be made directly to qualified charities and may not be made to donor advised funds, private foundations or supporting organizations.