Retirement Assets

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NEW LAW: No Required Minimum Distributions in 2020!

As a part of the CARES Act, Congress has temporarily eliminated most required minimum distributions (“RMD”) from retirement plans during 2020. Check with your financial advisor to see how this might affect you. Even without an RMD, a QCD remains a great way to make tax advantageous contributions. Learn more about the CARES Act


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held in these tax-favored, qualified retirement plans are typically not subject to income tax until they are actually withdrawn from the plan by the plan owner or surviving heirs.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

  Print info on Retirement Assets.  

Option 1: Qualified Charitable Distribution (QCD)

What gifts qualify for an IRA charitable rollover Qualified Charitable Distribution (QCD)?

  • You must be age 70 ½ or older when the gift is made.
  • The gift must come from your IRA account. Although 401(k), 403(b), SEP IRA accounts, and other retirement accounts do not qualify, it is possible to roll over qualified retirement plans to an IRA.
  • The gift must come directly from your IRA administrator to Bryn Mawr.
  • Total Qualified Charitable Distribution (QCD) gifts in any one year cannot exceed $100,000.
  • If you are age 72 and must take your RMD, a QCD can satisfy your RMD without increasing your income taxes. If you don’t itemize and are not yet required to take your RMD, a QCD offers all of the benefits of an itemized income tax charitable deduction.
  • 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 the QCD gift 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 they end.  

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

  • Your estate is entitled to an unlimited estate tax charitable deduction for the value of your IRA donated to  Bryn Mawr if your estate exceeds the applicable exemption.
  • The QCD is an income tax smart gift.  The Secure Act enacted in 2020 limits prohibits stretching out distributions from an inherited IRA over the life of heirs.
  • Since  Bryn Mawr is tax-exempt, a gift to  Bryn Mawr from your IRA is not subject to income taxes.
  • 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 charitable remainder trust or gift annuity 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.

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

  • A charitable trust or annuity can provide lifetime income for life since that is no longer possible after adoption of the Secure Act.  That law prohibits stretching out distributions from an inherited IRA over the life of heirs.
  • The gift portion of your charitable trust or annuity provides an unlimited estate tax charitable deduction if your estate is subject to estate 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 they earn, or the capital gain realized within the account. This allows the assets to grow faster than if held and invested these qualified plans.

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 72 years old
You must start taking withdrawals from your qualified retirement plan once you reach 72 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%.

How do I pass retirement plan assets to FSP? 
You have several good options for passing your retirement plan assets to us.

Beneficiary Designation
The simplest and most common way to give retirement plan assets is to make our organization a beneficiary of your retirement plan. All you need to do is to file a revised beneficiary designation form with your retirement plan administrator to designate our organization as a beneficiary of your plan and name the percentage of your remaining assets 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 especially important that you make our organization the designated beneficiary of these retirement plan assets, not your estate. 

Life income plan
Prior to the passage of the Secure Act in 2020, inherited IRAs could stretch out their taxable distributions over the life expectancy of your heirs.  The Secure Act requires an inherited IRA to distribute all of its assets within 10 years.  With the elimination of the stretch IRA, an attractive option for planning so that inherited retirement plan assets can pay income for life is to designate a charitable remainder trust or charitable gift annuity as the beneficiary of your retirement 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. Such a plan strikes a balance between leaving all of your retirement plan assets to loved ones subject to significant taxation and leaving all of these assets to us and eliminating taxes on them altogether. Here's how a life income plan works:

  • 1. Your retirement plan transfers the designated portion of its final balance to a charitable remainder trust or a charitable gift annuity. 
  • 2. The heirs you have chosen receive payments from the plan each year, typically for life. 
  • 3. When the life income plan ends, its remaining principal goes to support  Bryn Mawr.

 

Example

Colleen, 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.

Colleen 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 Colleen's retirement plan assets that are transferred to Bryn Mawr. If Colleen 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 Colleen's estate were large enough to pay estate tax. 
  • Colleen 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.