Gifts of Retirement Assets
Contributions to retirement plans can provide an excellent opportunity for growth as they grow tax-free, meaning that the growth or earnings are not taxed annually but can continue to grow. The earnings are taxed when they are withdrawn, but this has allowed more dollars to be invested for more growth. Additional savings can occur if the recipient is in a lower tax bracket when the funds are withdrawn (for example, during retirement) than when the investments were growing.
Like many people Mr. and Mrs. Smith put some of their savings into the stock market. They were also employed by companies that had 401k plans. They invested and the value of their plans kept growing. They have long been active in charitable giving - One of their first charitable gifts had been a gift of appreciated stock.
Careful planning concerning the withdrawals from retirement funds needs to be done. Not only is there a potential income tax burden, but if there is a balance in your retirement account at your death, there may be estate taxes as well. Estimates are that taxes could eat up as much as 70-75% of retirement assets under certain circumstances.
Using qualified retirement plan funds is an excellent source of assets to fund bequests. By designating Concordia University as a beneficiary (it can be a contingent beneficiary after the death of a spouse) funds pass to Concordia University free of taxes. It is possible to set up the beneficiary as the recipient of the entire remaining funds in the account or establish a percentage to fund the bequest.
Please note - the designation of any charity as a beneficiary of retirement fund assets cannot be simply written in your will or trust. The charity must be designated as a beneficiary of the retirement plan.
There are other strategies in using retirement fund assets to fund charitable gifts. For example, qualified retirement fund assets may be placed in a charitable remainder trust to provide for children or a spouse. There may be estate tax savings as a result.
Everyone's personal circumstances are different, so please consult your tax advisor concerning the use of qualified retirement funds. We would be glad to make suggestions that could be effective in accomplishing you and your family's needs and benefit Concordia University as well.
Contact Dennis Cox, Director of Estate Gifts, at (949) 214-3182 or e-mail him at Dennis.Cox@cui.edu for more information.