Gift of IRA

The Best Asset to Donate to Charity or, It Could Be Reduced Up to 80% by Estate Taxes

For many, the money accumulated through the years in retirement plans such as TIAA-CREF or PERS represents a significant percentage of their total assets. Even with the minimum distribution rules for mandatory withdrawal, many of these plans will still have large balances at the death of the owners.

People are often very surprised to learn that assets they thought would simply pass to heirs from their qualified retirement account are among the most heavily taxed assets in their estate.

A combination of estate taxes, income taxes, and generation-skipping transfer taxes can consume nearly 80% of a retirement plan account.

There are ways to avoid, or significantly reduce, these taxes.

If you are interested in supporting TCNJ through a bequest, a qualified retirement plan or IRA may be the best asset to designate to The College.

When you make The College the beneficiary of your retirement plan, you would eliminate the income tax, generation-skipping transfer tax, and the estate tax on the funds in the plan.

The College would receive 100% of the retirement assets; by contrast, if you left these same assets directly to heirs, they may receive as little as 20%. Even with the 1997 repeal of the 15% excise tax on retirement accounts they remain the most heavily taxed asset in your estate.

Use of Retirement Assets to Create a Trust for Your Heirs

You may wish to benefit your heirs before transferring your assets to charity, then you can create a testamentary charitable remainder trust as beneficiary of your IRA or other qualified retirement plan.

Upon your death, the plan balance will be distributed to a charitable remainder trust which will pay income to your heirs for their lifetimes, or for a period of years.

Upon their deaths, or when the trust term is completed, the remaining trust principal will be transferred to The College.   

With this strategy some income tax is avoided, the estate tax is reduced, heirs may enjoy a greater percentage of the proceeds, and you have provided a substantial gift to The College.

Special Provisions for Tax-Free Transfer from IRA to Charity for 2006, 2007 Tax Years.

In 2006, as part of the Pension Protection Act, Congress permitted individuals who were 70 and one half years of age or older to transfer gift withdrawals directly from their IRA to a qualified charity such as TCNJ (thus avoiding paying income tax on the mandatory withdrawal).  However, in order for this withdrawal to be tax-free it is imperative that the funds be transferred by the fund management company.

Please see Tax Free IRA Rollover.

Please call The College of New Jersey Gift Planning Office at 609-771-3285 or 609-771-2393, or e-mail kubik@tcnj.edu for more information.