Retirement Plans

Making a Gift From Your Retirement Plan

Love for the Least | Retirement Plans

Your retirement plan can be a convenient “pocket” from which to make charitable gifts to Love for the Least 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 use all or a portion of these withdrawals for your charitable gifts.

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 60% of your adjusted gross income (AGI).

Tax-Free IRA Gifts (Qualified Charitable Distributions)

Those 70½ or older may wish to take advantage of an additional tax benefit when they choose to make their gifts using funds from their IRA, called qualified charitable distributions (QCDs).

This year, you can make a QCD in any amount up to $105,000 free from federal income taxation.* The income tax laws of most states allow tax-free treatment as well. Check with your tax advisor.

This provision applies only to IRAs and not to 401(k)s, 403(b)s or other tax-favored retirement plans. Gifts must be made directly to a qualified charity and may not be made to donor advised funds, private foundations or supporting organizations.

*The benefits of a QCD are reduced for those who also make deductible IRA contributions.

Planning Tip: You may want to consider naming a charity to receive what remains 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 similar plans can be subject to federal and/or state estate taxes.

 

When heirs receive the balance of retirement plans after payment of estate taxes of up to 40% or more, income tax will also be due—up to 37% or more—depending on state income taxes and other factors. The combination of income and estate taxes that could eventually be levied on retirement accounts may, in some cases, amount to the bulk of an account’s value.