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Five Ways to Make a Charitable Gift with Retirement Funds

Posted November 2017

Our donors often ask if they can make a charitable gift to support our work with some of their retirement funds. That is understandable because the balances in these funds are often larger than the owners will need for retirement security. It is, indeed, possible to make charitable gifts from these funds, but the procedure for doing so depends on the type of retirement plan and your age as the owner. Following is a brief guide based on your circumstances.

1. You are 70½ or older and have an IRA. You may authorize your IRA administrator to transfer in any year a cumulative amount, not exceeding $100,000, to support one or more charities. The amount you transfer to support our work will not be added to your taxable income and will count towards your mandatory distribution.

2. You are 70½ or older, and your retirement funds are in a 401(k), 403(b), or other retirement plan but not in an IRA. In most instances, especially if you are retired, you can transfer money from your existing plan to a self-directed IRA. Then you can authorize your IRA administrator to direct a charitable transfer to support our work, as described above. Per existing legislation, you can make such charitable tax-free transfers only from an IRA.

3. You are over 59½ but under 70½ and have any type of plan that allows you to take discretionary withdrawals. This could be an IRA, 401(k), 403(b), and certain other types of defined contribution plans. You can take a cash withdrawal and then contribute it to us. The amount you withdraw will be added to your taxable income, but you will receive a charitable deduction for the contribution. Assuming you itemize your deductions and you can use the entire deduction this year, the deduction will offset the taxable distribution—resulting in little or no tax.

4. You are over 59½, you have any type of plan that allows you to take discretionary withdrawals, and you have in your portfolio some highly appreciated stock you would like to sell. You can contribute the stock to us, take a cash withdrawal from the retirement plan, and use the amount of cash withdrawn to purchase whatever new stock you wish. Again, the charitable deduction will entirely or substantially offset the taxable withdrawal if you can use the deduction this year. Additional benefits: You are not taxed on the gain in the stock you contribute and you will now have in your portfolio stock with a higher cost basis—resulting in less tax on the capital gain if you later sell it. Note: If you are not yet 59½, it is not advisable to take distributions because they would in most cases be subject to a tax penalty.

5. You want to retain control of your retirement funds to make sure you have enough income during your retirement years. You can name our organization as beneficiary of a percentage of whatever funds remain at the end of your life. If you pass these retirement funds (other than those in a Roth IRA) to heirs, the distributions to them will be subject to income tax and possibly to estate tax as well—depending on the size of your estate. However, if you give them to charity, they are subject neither to income nor estate tax. For this reason, our donors often make their legacy gifts to us with remaining retirement funds and give their heirs securities, real estate, and other assets for which the gain accruing before death would not be taxed.

For more information about gifts of retirement funds, please contact us.

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