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Using IRA for Gifts

The law which permitted individuals over 70 1/2 years to donate money directly from their IRA has been made permanent.  You can donate up to $100,000 to fulfill your RMD (required minimum distribution).  Following many years of annual renewals, the ability to take full advantage of this type of gift has is now permanent – enabling you to make your financial planning or decisions anytime during the year.

Why would I want to donate from my IRA?

Some donors do not need the additional income and don’t want to pay the extra taxes this RMD income creates.  Giving your RMD avoids income taxes.  Others donate to avoid being placed in a higher tax bracket.  Still others do not itemize so a charitable deduction is not useful.  It is important to know that while you do not pay taxes on this income, you also do NOT receive a charitable deduction.

The bill requires that the donation come directly from the financial institution that manages your IRA to TCNJ Foundation, Inc. to comply with IRS regulations.

You will receive a statement for your tax purposes indicating you have donated this money from your IRA that counts towards your RMD.  You will need this letter when preparing your taxes.  You also are not required to donate all your RMD, only the amount you desire to donate.  Note – not all charities are eligible to receive these gifts but TCNJ Foundation, Inc. does meet these IRS guidelines.

Leaving a bequest from the IRA still could be a good option for some individuals.  Leaving money from your IRA to heirs can be taxable to the estate and your heirs (unless you leave it to your spouse).  Giving a gift to TCNJ Foundation from your IRA is tax free and can reduce your estate tax liability.

Speaking of your IRA – there may be advantages to your estate by designating TCNJ as a beneficiary of your IRA.

Leaving your IRA to your heirs (other than your spouse) can lead to significant taxes.

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.

New estate law changes are now in effect. Remember your home state (including NJ) may have estate taxes which could also impact your estate’s tax situation.

How to do it:

You MUST contact the firm that handles your IRA and use a change of beneficiary form.  You can leave a percentage of your IRA or a specific dollar amount.  Only the beneficiary form determines who gets this money, not your will.

Giving a gift from your IRA once you have passed entitles you to membership in the Heritage Society once you have contacted our offices and notified us of your intentions.

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.

Find out how you might benefit from a planned gift.