A gift of a retirement plan asset can protect your heirs from heavy taxes and maximize your charitable impact. If you leave your retirement fund assets such as your IRA or 401(k) to loved ones, these assets may be reduced by half or more due to taxes. However, if given to charity, your hard-earned dollars can benefit your community instead of a large percentage going to taxes.
Retirement plans appropriate for “gifting”
- Profit-sharing or other defined contribution plans
- 401(k) plans, which allow an employee to reduce taxable compensation
- 403(b) plans for employees of nonprofit organizations
- Individual Retirement Accounts (IRAs)
Benefits of a gift of retirement plan assets
- Tax savings: If you name Atlanta Jewish Foundation as the beneficiary of your retirement plan, your unused benefits will be distributed upon your death to the Foundation, free of both estate and income taxes. If you have children or other heirs, you can leave them stock, real estate or other estate assets that would not be subject to income tax. If you are married, you may want to leave your retirement plan assets to your spouse first and then to charity. This is because the marital deduction assures that no estate tax applies to a transfer to a spouse.
- Permanence: Your gift can create a permanent, named charitable fund at Atlanta Jewish Foundation. Your fund can last forever, making annual grants to charity according to your wishes and in your name. Depending on the type of fund you establish, you can even name your children as advisors to the fund, allowing them to remain involved with the fund’s grantmaking throughout their lifetimes.
Special considerations
The Roth IRA has tax consequences that differ significantly from regular IRAs. Unlike a regular IRA, which incurs both an estate tax and an income tax when the account owner dies, the income tax for a Roth IRA has been prepaid. Only estate tax is paid when the Roth account owner dies. From a tax perspective, this makes the Roth IRA a less attractive gift to charity. Annuity plans, such as defined benefit plans, generally cannot be used because payments may terminate on the participant’s or surviving spouse’s death, leaving nothing for charity.
How to make a planned gift of retirement assets
- Make Atlanta Jewish Foundation a beneficiary of the retirement asset. This can usually be done by a change of beneficiary form from the administrator of the asset.
- You may choose any percentage to gift to the Foundation.
