Donors
Gifting Retirement Accounts
Save Taxes and Use Your Retirement Accounts to Invest in the Future of Maharishi University of Management
You can permanently avoid tax on the deferred gain in your retirement plan by making the University the beneficiary of the plan.
Proceeds of retirement plans are taxable to the beneficiary unless the beneficiary is a charity. For example, your children may pay the tax over time, but they will be taxed on the proceeds of your IRA, 401(k), 403(b), Keogh or SEP plans.
The proceeds from your Retirement Account are taxable to the beneficiaries unless the beneficiary is a charitable organization, and then the deferred tax on the retirement plan is permanently avoided. Retirement plan assets left to anyone other than a spouse may be subject to both income and estate taxes, which could result in as much as 65% going to taxes. If you name a charity as beneficiary, all taxes are avoided.
Retirement plan accounts will often be a better source of charitable bequests than a traditional charitable bequest in a will. Not only can you make a charitable bequest more easily with your retirement account, you will also be using the asset that produces the greatest income tax savings to your estate and your heirs.
Using your retirement account for charitable bequests is administratively simpler than making a charitable bequest in a will. Retirement plan beneficiary forms are filled out by you and can be changed frequently without the formality of lawyers and witnesses.
The income tax law provides an even greater incentive. By making a charitable bequest from your retirement plan account, you will be giving a tax-exempt charitable organization the assets that would have otherwise been taxable to your estate, family or friends. The general tax rule is that an inheritance is excluded from taxable income. In addition, inherited assets such as stock or real estate receive the added tax benefit of a step-up in basis. Consequently, a person who sells an asset shortly after inheriting it usually has little taxable gain from the sale.
There are, however, a few inheritances whose receipt produces taxable income. These assets generate income in respect of a decedent (IRD). Usually the largest source of IRD will be an IRA, 401(k) plan or 403(b) plan. The receipt of an inherited retirement account distribution is not exempt from income tax, and there is no step-up in basis. Therefore, if a person is considering a charitable bequest, it is usually better to transfer the taxable assets to a charitable organization and transfer the nontaxable assets to heirs. The best method to accomplish this is to name the charitable organization as a retirement plan beneficiary.
For More Information
It is best to consult your tax professional if you are contemplating a gift of retirement accounts. Please feel free to call Vicki Alexander at the University’s Office of Planned Giving at 641-472-1180 with any questions.
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