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Gift of Retirement Assets
(Complete gift description)

Income and Estate Tax Matters
Retirement plans benefit from favorable tax treatment – they grow tax-free as long as they are held in your account. But when you or your beneficiary (including a spouse) take withdrawals now or in the future, the withdrawn assets will be taxed as ordinary income upon receipt. Any remaining account balance passing to an individual other than your spouse at your death may also be subject to estate tax depending on your available exemptions and deductions. The combination of income and estate taxes can be significant in some cases, depleting the value of your account quite a bit.

Retirement plan assets passing to qualified charities, however, will pass free of income and estate tax, allowing 100% of the assets to be applied to the charitable purposes you designate.

An illustration of the different tax and distribution consequences assuming a $2 million estate comprising $1,000,000 in cash and stock, $1,000,000 in an IRA, and a surviving spouse taxed at a 30% overall rate is shown below.

Law School Foundation (IRA) Spouse (cash/stock)    
Amount distributed: $1,000,000 IRA + $1,000,000 cash/stock    
Tax: $0 $0    
Net distribution: $1,000,000 + $1,000,000 = $2,000,000

Law School Foundation (cash/stock) Spouse (IRA)    
Amount distributed: $1,000,000 cash/stock + $1,000,000 IRA    
Tax: $0 $300,000    
Net distribution: $1,000,000 + $700,000  = $1,700,000

Beneficiary Designation
To make the Law School Foundation a beneficiary of all or a part of your retirement account, you will need to complete a new beneficiary designation form for your plan administrator. A few points to remember:

Current Gift (Qualified Charitable Distribution)

Originally enacted in 2006, the Qualified Charitable Distribution law was finally made permanent effective January 1, 2015. This means that a donor age 70 ½ or older can direct tax-free distributions from an IRA directly to qualified charities up to $100,000 in the aggregate each year. The distribution will be excluded from your federal taxable income for the year, but it will count toward your required minimum distribution (RMD). Because the amounts will never be included in and taxed as income to you, you cannot claim a charitable income tax deduction for the distribution. Requirements for a distribution under the QCD law include:

The QCD opportunity can be beneficial in certain circumstances, including when:

If you are not eligible to use the QCD law, a withdrawal from your account followed by a charitable donation of retirement plan assets may be a "wash" from a tax perspective – your charitable deduction may offset the ordinary income received from the plan.

As always, your tax advisor can run the numbers for you to determine whether a donation using retirement plan assets is a good plan for you.

For more information

Email us, or call us at 877-307-0158 (toll free) or 434-924-4514 (direct) so that we may answer your questions and help you through the process.


The materials provided in this website and the examples contained herein are for illustration purposes only and are not intended as legal or tax advice. We encourage you to consult your own legal and tax advisor.