|
|
|
Today, most individuals have more money in their retirement plans than they do in their primary residence. Thanks to recent legislation, the contribution limits to retirement plans have increased, making it even more attractive to accumulate wealth in these plans. Retirement plan assets, including IRAs, 403(B) plans, 401(K) plans and other plans, can make excellent gifts, especially when made at death. But, when retirement plan assets are left to heirs other than the spouse, the beneficiary could incur estate and income taxes of up to 70 percent. Since income taxes were not required to be paid during one's lifetime, they must be paid at death, in addition to potential federal and state estate taxes, leaving little for heirs. Giving retirement assets to charities tax-free may be the best an excellent option.
A great solution to the problems of giving IRA assets during one’s life time is the new Charitable IRA Rollover. Click her to learn more about this new giving opportunity.
Help a young person get a superior education –
and assist the Colleges in recruiting talented students.
The easiest way to leave your retirement plan assets
to charity is to complete a designation of beneficiary
form with the financial provider or plan sponsor that
holds your retirement plan assets. Retirement plan assets
do not pass through probate; instead these assets are
transferred directly to the beneficiary who is named
as the successor beneficiary on the designation of beneficiary
form.
Most important, your will or living trust should contain
language that all charitable bequests should be made,
to the extent possible, with "income in respect
to decedent" (IRD) assets. These are assets where
income taxes are due such as IRAs, HH Bonds, etc. Without
this language, the estate will be able to claim
an estate tax charitable deduction for its charitable
bequests, not an income tax only charitable deduction.
In addition to the increase in allowable contributions,
new regulations have made IRA distribution rules more
attractive than ever for charitable giving. The new
required minimum distributions are based on the joint
life expectancy of the account owner and an individual
assumed to be 10 years younger than the owner, regardless
of the age of the actual named beneficiary. This new
regulation does not require that the minimum distributions
be accelerated when a charity is named as a beneficiary,
thus reducing the donor's income tax liabilities and
maximizing the amount available to the Colleges and
family upon the donor's death.
New legislation allows for gifts of retirement assets without tax consequences in most cases: The recently signed Pension Protection Act of 2006 allows donors who are 70.5 years or older to make annual gifts of up to $100,000 from their IRA in the years 2006 and 2007 directly to Hobart and William Smith Colleges. While there is no charitable tax deduction for the donor, the distribution is not counted as part of the donor’s federal taxable income. Because state taxation may impact this opportunity, it is important that you review this gift, as any other, with your attorney or financial advisors who are familiar with your personal circumstances.
General Retirement Terms:
Designation-of-Beneficiary Form: A
form on which the plan participant indicates the names
of the beneficiaries, both primary and contingent, who
will receive a distribution of the participant's benefits
under the plan in the event of the participant's death.
Employee Retirement Income Security Act of
1974 (ERISA): Federal law enacted primarily
to protect employee pensions and to enforce pension
quality. ERISA subjects individuals and employers who
administer, supervise or manage pension plan funds to
numerous responsibilities.
Income in Respect to Decedent (IRD):
Taxable income to the decedent had the decedent received
the income the day before he/she died.
Individual Retirement Account (IRA):
An account at a bank, financial services company or
credit union to which a person can make annual tax deductible
contributions. Deductible traditional IRA contributions
and all earnings are fully taxable when withdrawn. Withdrawals
by individuals before they reach the age of 59 ½
are taxed and penalized. Distributions must be made
by December 31 in the year following the year in which the person reached
the age 70½.
Keogh Account: An account to which
a self-employed person and his or her employees can
make annual tax deductible contributions up to a specified
amount.
401(k) Plan: A deferred contribution
plan an employer may establish. A 401(k) plan permits
employees to make pre-tax contributions by salary reduction
agreements within a cash or deferred plan.
403(b) Plan or Tax Sheltered Annuity (TSA):
A qualified plan allowing employees of public schools
and tax-exempt organizations to defer taxation on current
income. 403(b) plans act in a manner similar to 401(k)
plans.
Profit Sharing Plan: A type of defined
contribution plan under which the employer's contributions
to an employee's account are related to the employer's
profits.
Rollover distribution: Certain distributions
from a 401(k) plan may avoid taxation entirely if they
are rolled over, or contributed into another qualified
retirement plan or an IRA within 60 days.
Roth IRA: An account at a bank, financial
services company or credit union to which a person can
make annual non-tax deductible contributions. Since
Roth contributions are not deductible, withdrawals are
not taxed and the asset growth is tax-deferred.
Please Note:
Gifts of this nature should be carefully considered
in relation to your comprehensive financial and estate
plans. We strongly recommend that you consult an attorney
and/or financial adviser before completing a planned
gift to the Colleges.
Thank you for remembering Hobart and William Smith
Colleges.
| Recent
HWS Example:
Barbara Tornow `65 – Estate Planning |
|  Barbara
Tornow `65 sits on the Colleges' Board of Trustees, a commitment she takes seriously, but that is not her only contribution to the Colleges
she loves. In addition to her bequest, she plans
to use the assets in one of her TIAA-CREF retirement
accounts to establish a scholarship at the Colleges
in her name and in memory of her deceased husband,
Charles “Jack” Sheehan, who was a
nationally recognized financial aid administrator.
Tornow pointed out that creating the scholarship
was a decision she made as her way to give back.
She understands better than most the value of
such a gift.
Tornow is a senior adviser to the vice president
for enrollment at Boston University and sees firsthand,
every day, how valuable such scholarship assistance
is to students.
“I attended William Smith on a scholarship.
I wouldn’t have been able to get my education
here without it,” said Tornow. “And
that education has been so important to me, to
what I have been able to do in my life. I feel
I must give back – to offer similar scholarship
support to others who need that aid to take advantage
of a Hobart and William Smith Colleges education.”
But Tornow says her professional experience has
taught her something else.
“For admissions personnel, scholarship
funds are an important tool. Scholarships help
admissions bring in the students who will contribute
to the academic and social mix of the college,”
she added. “With monies available, talented
and interesting students from all walks of life
can get aid – and all the students here
benefit from the diversity that can be found on
campus. It’s a win-win.”
The planned giving Barbara is initiating is a
valuable option for all alumni and alumnae who
want to offer scholarship aid to incoming students
and to assist the Colleges in cultivating classes
that will enhance the experience of all students.
“I’m truly indebted to these Colleges
for the wonderful education I received when I
was here, and today I am doubly proud of my alma
mater. As a Board member I get a good look
at the Colleges as they are today,” said
Tornow, “and I am excited by what I see
– the commitment of the faculty, impressive
students who are motivated in large part by the
excellence among that faculty, the very capable
administration, and, I will add, the very committed
Board of Trustees.”
|
Please note, individual financial circumstances will vary. The information on this site does not constitute legal or tax advice. As with all tax and estate planning, please consult your attorney or estate specialist. All material is copyrighted and is for viewing purposes only. Use of this site signifies your agreement with the terms of use. This Planned Giving section has been developed for Hobart and William Smith Colleges by Future Focus.
|
