Retirement Assets

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Many Americans have taken advantage of tax incentives provided by Congress to encourage saving for retirement through contributions to Individual Retirement Accounts (IRAs), 401(k)s, 403(b) and similar plans.

Funds held in these tax-favored, qualified retirement plans are typically not subject to income tax until they are actually withdrawn from the plan by the plan owner or surviving heirs.

Given that qualified retirement plan assets are subject to tax on withdrawal, you may wish to direct these assets to fund gifts to Bryn Mawr during your lifetime, or later, through your estate.  

If you are over the age of 70½, gifts made directly from an IRA to Bryn Mawr through the charitable rollover provision will not be subject to income tax that would otherwise be payable on withdrawal. You may find that your retirement plan can be a convenient "pocket" from which to make charitable gifts each year.

Estate taxes and income taxes may similarly diminish an inheritance from a qualified retirement plan. Many alumnae/i choose to make a lasting and tax-wise gift to the College by naming the College a beneficiary of their retirement plan and provide for their loved ones with assets that are not subject to income tax.

  More on Retirement Assets.

Option 1: IRA Charitable Rollover opportunity

Permanent IRA Charitable Rollover Signed Into Law

On December 18, 2015 the IRA Charitable Rollover legislation was signed into law by President Obama.  It is part of a major tax extender package known as the Protecting Americans From Tax Hikes Act of 2015 (PATH). This law extends the IRA Charitable Rollover retroactively to January 1, 2015 and makes it permanent.

 

What gifts qualify for an IRA charitable rollover?

  • You must be age 70 ½ or older when the gift is made.
  • The gift must come from a traditional IRA or Roth IRA account. Although 401(k), 403(b), SEP IRA accounts, and other retirement accounts do not qualify, it is possible to roll over qualified retirment plans to an IRA.
  • The gift must come directly from your IRA administrator to Bryn Mawr.
  • Total IRA charitable rollover gifts in any one year cannot exceed $100,000.
  • The IRA rollover gift can count toward your Required Minimum Distribution (RMD) if you have not already taken your RMD for the year you make your gift.
  • The gift from your IRA will not be available as an income tax charitable deduction;
  • The gift from your IRA will be excluded from income.

To take advantage of this opportunity, notify the financial institution that manages your IRA account. Request the form to direct them to transfer a gift (a Qualified Charitable Distribution) to the College. The College’s Tax ID is 23-135262.

Option 2: Designate remaining retirement plan assets for Bryn Mawr College

Another attractive option is to designate Bryn Mawr as the recipient of some or all of what’s left in your IRA, 401(k), 403(b), or other qualified plan when it ends.    

In addition to the satisfaction of making a significant gift to Bryn Mawr, your benefits include:

  • Making a gift completely free of federal and state taxes that can total 37.0% or more, if your estate exceeds the applicable exemption.
  • Preservation of non-retirement plan assets for family.

Option 3: Designate remaining retirement plan assets for a life-income plan

Alternatively, you can designate that some or all of the assets remaining when your IRA, 401(k), 403(b), or other qualified plan ends be used to fund a gift arrangement that will make payments to family members or other loved ones for the rest of their lives. When the gift arrangement ends, what is left will go to Bryn Mawr College.

In addition to having the satisfaction of making a significant gift to Bryn Mawr, your benefits include:

  • Potentially saving federal and state taxes.
  • Preserving non-retirement plan assets for family.
  • Providing payments to family or other loved ones for life.

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IRAs and qualified retirement plans
Retirement plan assets are a major source of wealth for many households. For example, you may have hundreds of thousands of dollars invested in your IRA, 401(k), 403(b), or other qualified retirement plan. These plans do not pay tax on the income and capital gain realized by their investments. This allows their assets to grow faster than if you held and invested these assets outside of your retirement plan.

The primary purpose of your retirement plan is to provide you with income during your retirement, but it can also be an excellent source of funds for making charitable gifts during your life and when your plan ends.

Withdrawals are taxed as income
With the exception of the Roth IRA, the money used to fund a qualified retirement plan, such as a traditional IRA, 401(k), or 403(b), has never been taxed. Also, earnings that occur within a qualified retirement plan are not taxed. As a consequence, withdrawals from any of these plans (except for the Roth IRA) are taxed as ordinary income. Your federal income tax alone on a withdrawal from one of these plans could be as high as 37%.

Withdrawals are required once you reach 70 ½ years old
You must start taking withdrawals from your qualified retirement plan once you reach 70 ½ years old. The amount you must withdraw each year is a percentage of the value of your retirement plan as of the last day of the previous year. The percentage starts below 4% for someone who is taking their first “required minimum distribution” and increases with age according to a schedule published by the IRS. 

Taxes on remaining retirement assets can be very high
Your family members and other heirs will have to pay income tax on any distributions they receive from your retirement plan after you are gone. In addition, your qualified retirement plan is included in your estate, so if your estate is large enough to owe estate tax, your plan may increase the estate taxes you owe. 

Federal income tax alone can be 37%. When you add federal income tax and estate tax together, they can total 62% or more. In states that assess their own taxes on estates, the total taxes on retirement plan assets paid to heirs can be over 62%.

Give retirement plan assets to Bryn Mawr College and save taxes
In contrast to your retirement plan assets, your estate will not owe income tax on most of its other assets in addition to estate taxes that may be due. As a result, your estate and heirs will pay lower taxes if you pass your less heavily taxed assets to your heirs, and give your retirement plan assets to charity. Paying lower taxes will mean that more assets will reach your heirs. How much more will depend on the size of your estate, where you live, and the type of gift you make.

How do I make a gift of retirement plan assets to Bryn Mawr? 
You have several good options to make a gift of your retirement plan assets to us.

Option 1: Make a tax-free gift today with an IRA charitable rollover 
You can make a tax-free gift by directing the administrator of your traditional IRA or Roth IRA to transfer funds directly from your plan to Bryn Mawr. You can instruct your IRA administrator to transfer the funds directly to Bryn Mawr or to send you a check that is made out to Bryn Mawr College.

When you make an IRA charitable rollover gift, you won’t need to include the transferred funds in your income for that year and therefore will not pay any tax on them. If you were to withdraw the funds yourself and then make a gift to us, you would have to include the withdrawal in your income. Even if you take an offsetting income tax charitable deduction, the result could be more income tax for you to pay overall. You cannot make a IRA charitable rollover gift from other qualified retirement plans, such as SIMPLE or SEP IRAs, 401(k)s, or 403(b)s. 

Another great feature of an IRA charitable rollover gift is that it counts toward the amount you are required to withdraw from your IRA for the year (your “required minimum distribution”), If you don’t need these funds for your own use, you can use them to make gifts to Bryn Mawr and your other favorite charities and avoid paying income tax on these withdrawals. 

The benefits of making an IRA charitable rollover gift include:

  • Your withdrawal is not included in your income so it doesn’t affect your taxes.
  • Your withdrawal counts toward your required minimum distribution for the year.
  • You have the satisfaction of providing immediate support to Bryn Mawr.

There are several requirements you must meet in order to make an IRA charitable rollover gift to Bryn Mawr:

  • Your distribution must be from your IRA or Roth IRA.
  • You must instruct your IRA administrator to make a distribution directly to Bryn Mawr.
  • You must be at least 70 ½ years old.
  • The total of all your qualified charitable distributions for the year must be no more than $100,000.
  • Your distribution cannot be made to a donor advised fund, private foundation, or supporting organization.
  • You cannot receive any benefit in exchange for your gift.

Option 2: Designate remaining retirement plan assets for Bryn Mawr College
The simplest and most common way to give retirement plan assets is to make our organization a designated beneficiary of your retirement plan. All you need to do is file a new beneficiary designation form with the administrator of your retirement plan that designates our organization as a beneficiary of your plan. Your designation should name the percentage of the assets that remain in your plan when it ends that you want us to receive.

The retirement plan assets that you designate for us will avoid all income tax and estate tax. In order for your estate to enjoy both of these tax benefits, it is very important that you make our organization the designated beneficiary of these retirement plan assets, not your estate.

Please identify us on the form with our legal name: Bryn Mawr College, 101 North Merion Ave, Bryn Mawr, PA 19010-2899 and include our Federal Tax Identification Number: 23-1352621

Option 3: Designate remaining retirement plan assets for a life income plan
Another option for passing retirement plan assets to us is through a life income plan. Passing assets to us through a life income plan allows you to provide income to your loved ones after you are gone and then provide support to us. Here's how a life income plan works:

  • Your retirement plan transfers the designated portion of its final balance to the life income plan that you have indicated on your beneficiary designation form.  
  • The heirs you have chosen receive payments from the plan each year, typically for life. 
  • When the life income plan ends, its remaining principal goes to support Bryn Mawr College.

Using retirement plan assets to fund a life income plan postpones income tax and reduces estate tax on these assets, if your estate is subject to estate taxes. A typical result is to reduce total taxes on your retirement assets by more than half compared to distributing them to your heirs through your estate.

Life income plan options 
There are several life income plan options to choose from. The one that is right for you will depend on a variety of factors. Please contact us if you would like to learn more about funding a life income plan with assets from your retirement plan.

Example

Suzanne, 75, is a retired business executive who has accumulated $500,000 in the retirement plan that she set up through her company years ago. She takes minimum distributions from her plan in order to preserve as much tax-free growth inside the plan as she can. At this rate, she expects that her account may still be worth 500,000 when she dies.

Suzanne has reached the time in her life when she has begun thinking about the legacies she wants to leave behind after she is gone. She decides to leave a bequest to Bryn Mawr College to create an endowed fund that will perpetuate generous support in her name. To accomplish her goals, she designates 40% of the final balance in her retirement account for Bryn Mawr College.

Benefits

  • There will be no income tax or estate tax on the $200,000 of Suzanne's retirement plan assets that are transferred to Bryn Mawr. If Suzanne were to pass the same amount to her family and make her charitable gift with stock instead, her family would owe income tax of $74,000 (37% bracket) on the IRA assets, leaving only about $126,000 for their own use. There would be even greater tax savings if Suzanne's estate were large enough to pay estate tax. 
  • Suzanne has the immediate satisfaction of knowing that she has put a gift plan in place that will keep her name alive and support Bryn Mawr College long after she is gone.

 

The information on this website is not intended as legal or tax advice. For such advice, please consult an attorney or tax advisor. Figures cited in examples are for hypothetical purposes only and are subject to change. References to estate and income taxes include federal taxes only. State income/estate taxes or state law may impact your results.