IRAs
For many people, their largest single asset is their retirement plan. People are often surprised to learn that they can leave retirement plan assets to charitable organizations, such as the MMRF, at death. These gifts may be made from IRAs, Keoghs and employer plans such as 401(k), 403(b) or profit-sharing plans.
If you compare the tax treatment of retirement plans to that of other assets, you quickly see that your retirement plan requires special attention. When your heirs inherit non-retirement plan investments, such as your home or stock, they are not subject to capital gains taxation for the increase in value of those assets during your lifetime. In contrast, retirement plan assets remaining at your death are generally subject to both estate and income taxes. When you withdraw funds from your retirement plan during your lifetime, income tax must normally be paid. Your heirs will have to pay the income taxes on retirement plan assets you did not withdraw during your life.
If you leave your retirement plan assets to your family, a combination of estate tax and income tax can erode your plan account by as much as 75 percent. You can avoid estate tax and possibly defer income tax by naming your spouse as the beneficiary. However, any portion of the plan you leave to your children is -vulnerable to both taxes.
As you can see, your retirement plan may provide considerably more benefit to the government (in the form of taxes) than it does to your family. By arranging now to leave retirement plan assets to a charity, such as the MMRF, you can make a charitable gift which comes largely out of what would otherwise be tax dollars.
An example might help illustrate the benefits of this strategy. John Smith has an estate of $800,000 when he dies in 1999 (the estate includes $75,000 of undistributed pension money). Mr. Smith wants the MMRF to receive $75,000 and wants his daughter to receive the balance of his estate, after taxes. Mr. Smith's daughter will receive a larger portion of the remaining $725,000 if he gives the MMRF the $75,000 of pension plan money instead of $75,000 of other assets. If properly planned, the gift of pension money to MMRF would avoid estate and income taxes. If Mr. Smith's daughter received the pension money instead, estate and income taxes would be owed on the pension money.
There are several ways to use your IRA or other retirement plan assets to make charitable gifts. If you would like more information on giving through retirement plans or other types of planned giving, you can call the MMRF Development Office at 612-347-4415. Because an estate plan encompasses the unique needs of each individual, you should consult with professionals when designating beneficiaries of retirement plan assets.
This article should not be construed as tax, accounting, estate or financial planning advice or opinion. The contents are intended for general information purposes only, and you are urged to consult legal, tax estate and financial planning professionals concerning your situation and any specific questions you may have.
