Gifts from Your Retirement Account

Development Staff

Qualified retirement plan assets are among the most tax-burdened assets you own.

If you die before you have taken most of your distributions from your IRA, 401(k), Keogh, SEP or other qualified retirement plan, the balance remaining in your plan can be subject to taxes that can claim 75 percent or more of its value.

During your lifetime, the law requires that certain minimum distributions be taken from your retirement accounts after you reach age seventy and one-half (70.5 years). These distributions are subject to federal income tax at your current tax bracket. (See below for information about a special tax break available until December 31, 2007.) Failure to take the required amount results in a 50 percent penalty tax on the undistributed amount.

At your death, you can roll over your qualified retirement plan without incurring estate tax to your surviving spouse, who can continue to receive distributions. When your spouse dies, however, any remaining plan assets are treated as Income in Respect to a Decedent (IRD) and become subject to multiple levels of taxation.

There are several ways to create a charitable strategy to minimize taxes:

The easiest way is to name Kanuga as the beneficiary of your plan. Simply fill out a "Change of Beneficiary Form" provided by your plan administrator. If your spouse is living, state law may require that he or she sign a "Spousal Waiver of Benefits." Because such gift intentions are technically revocable, no immediate charitable deduction is allowed, but your estate will receive a deduction at your death.
Take structured withdrawals from your plan beginning at age 59.5 or age 70.5 and make outright or life income gifts to Kanuga that generate an offsetting charitable deduction.
Set up a Testamentary Charitable Remainder Trust in your will into which you transfer any residual in your retirement plan at your death, naming your surviving spouse or children as income beneficiaries for life or a term of years and Kanuga as the charitable remainderman. This approach will avoid all IRD income tax liability and generate a partial estate tax deduction.

Special Tax Break for Friends of Kanuga with IRAs

Until December 31, 2007, owners of IRAs who are at least 70.5 years of age can transfer to Kanuga donations of up to $100,000 from their IRAs and have the gifts count toward their required minimum distribution. Eligible IRA owners would not get a deduction for the gift, but they would get a tax break because the gift would not be regarded as taxable income as it would if the owner withdrew the funds for personal use.

EXAMPLE

For example, John and his wife Mary are both 76. John’s IRA had a 2006 year-end value of $100,000. His required minimum distribution — the amount he must withdraw — is calculated by dividing the IRA’s year-end value by the distribution period determined by the Internal Revenue Service. (For age 76, that is 22 years.)

So in 2007, John must withdraw $4,545.45. Taken as taxable income, this required minimum distribution pushes John and Mary, who file jointly, into a higher tax bracket. But if John donates the distribution to Kanuga, they avoid this result because the gift is not taxed.

For information and assistance with any form of giving to Kanuga, please contact Randy Boone, Kanuga’s director of development, at 828-692-0077, ext. 240, or . Persons considering a sizeable donation to Kanuga or interested in providing for Kanuga in their estate plan should seek the advice of a financial advisor and/or attorney.