Gift of Retirement Assets

Gift of Retirement Assets

Retirement plan assets, including IRAs and qualified plans, can provide a tax-efficient way to support the Law School. The Law School Foundation will receive the assets free of income (and estate) tax, allowing 100% of the value to be applied to the charitable puposes you designate.

Retirement plan illustratio

How It Works

  • Beneficiary Designation: You name the Law School Foundation as a beneficiary of your IRA, 401(k) or other qualified plan. After your lifetime, the designated portion of your plan passes to the Foundation tax-free.
  • Current Gift: If you are at least 70 ½ years old, you are eligible to make a Qualified Charitable Distribution (QCD) to a public charity of up to $100,000 from your IRA each year. Distributions will be excluded from federal taxable income and will count toward your required minimum distribution if you have one. If you are at least 59 ½ years old, you can instead take a taxable distribution from your IRA or qualified plan and make a deductible donation to the Law School Foundation.

Benefits

  • Designating the Law School Foundation as Beneficiary
    • You can avoid both income and estate tax on the portion of your retirement account that you designate for the Law School Foundation, allowing 100% of the assets to be applied to the charitable purpose you designate.
    • You will give your most-taxed estate asset to the Law School Foundation tax-free and leave more favorably taxed property to your heirs.
    • You can continue to take withdrawals during your lifetime.
    • You can modify your beneficiary at any time if your circumstances change.
    • Steps to designate your beneficiary.
  • Make a Current Gift Using an IRA or Qualified Plan Assets
    • If you are at least 70 ½ years old, you are eligible to make Qualified Charitable Distribution (QCD) gifts from traditional IRAs (but not qualified plans) of up to a total of $100,000 annually to qualified charities. Distributions will be excluded from your federal taxable income but will count toward your required minimum distribution (RMD) if you have one. Note that the federal CARES Act has eliminated RMDs in most cases for the 2020 tax year, but you can still use a QCD to make a tax-free gift that will reduce the value of your IRA and taxable RMDs in future years.
    • If you are not eligible to use the QCD legislation, a lifetime withdrawal (after the age of 59 ½) from your IRA or qualified plan followed by the charitable donation of the withdrawn amounts is often a "wash" from a tax perspective and will allow you to reduce the value of your account and taxable RMDs in future years.
    • Latest information on QCD law and its potential benefits.
  • Your tax advisor can help you run the numbers to determine whether a donation from your retirement plan is a good plan for you.

Planning Points

  • The Law School Foundation's tax ID number is 54-0838566.
  • Select a purpose for your gift.
  • The SECURE Act, effective January 1, 2020, made changes to the RMD age.
  • The SECURE Act eliminated "stretch IRAs" (making inherited retirement accounts less valuable to heirs and increasing the value of using testamentary life income gifts to spread payments over an heir's lifetime).
  • The CARES Act suspended RMDs from IRAs and most retirement plans for 2020.

Retirement Plan Beneficiary Designation

To make the Law School Foundation a beneficiary of all or a part of your retirement account, you will need to complete a new beneficiary designation form for your plan administrator. A few points to remember:

  • The Law School Foundation's tax ID number is 54-0838566.
  • You can name the UVA Law School Foundation as a partial or full beneficiary of your account, either by designating a specific dollar amount or a percentage of your account to be distributed.
  • You must use your plan administrator's beneficiary designation form to make a change to your beneficiaries. You cannot make the change through your will or living trust.
  • Do not direct the plan to satisfy an existing bequest in your will. The assets will be included in your probate estate and your estate will likely be treated as having taxable income.

An illustration of the different tax and distribution consequences for naming a charitable beneficiary of a retirement account is below, assuming a $2 million estate comprising $1,000,000 in cash and stock, $1,000,000 in an IRA, and a surviving spouse or child taxed at a 30% overall rate.

In the first scenario, the IRA is designated for charity while the cash and stock assets are left to a spouse or child, resulting in $2,000,000 passing to beneficiaries without tax. In the second, the cash and stock are left to charity and the IRA is left to the spouse or child, resulting in income tax of $300,000 and leaving only $1,700,000 to pass to the beneficiaries.

 

  Law School Foundation (IRA)   Spouse/Child (cash/stock)    
Amount distributed: $1,000,000 IRA + $1,000,000 cash/stock    
Tax: $0   $0    
Net distribution: $1,000,000 + $1,000,000 = $2,000,000
  Law School Foundation (cash/stock)   Spouse/Child (IRA)    
Amount distributed: $1,000,000 cash/stock + $1,000,000 IRA    
Tax: $0   $300,000    
Net distribution: $1,000,000 + $700,000  = $1,700,000

 

IRA Qualified Charitable Distributions

If you are at least 70½ years old, you are eligible to make a Qualified Charitable Distribution (QCD) from a traditional or Roth IRA. Amounts distributed to support the University of Virginia Law School Foundation will be excluded from federal income.

Know The Details

  • You must be at least 70 ½ on the date of the distribution to the charity.
  • Distributions must be made from an IRA, including inactive SEP and SIMPLE plans. Distributions from any other type of retirement plan (401(k), 403(b), 457, Keogh, and active SEP and SIMPLE plans) will not qualify.
  • QCD distributions are limited to $100,000 in total during each year.
  • A distribution must be made outright to a qualified public charity--it cannot be used to fund a charitable remainder trust, gift annuity, donor advised fund, or family foundation.
  • Your plan administrator must transfer the funds directly--you may not receive the distribution first and transfer it to the charity.
  • The distribution must be received by the charity on or before December 31, 2020 to be counted in the 2020 tax year.
  • Each distribution will be excluded from federal taxable income.
  • Because the QCD distribution is not taxable income, you cannot claim a deduction for federal tax purposes. Some states may treat distributions as income followed by a deduction. Please check with your tax advisor to learn more.
  • Note that QCDs typically count toward your required minimum distribution (RMD) if you are required to take one. Using QCDs to make charitable gifts even when you do not have an RMD will help reduce the value of your IRA and taxable RMDs in future years.

For a more complete description of the IRS regulations, please see the most recent version of IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs).

The QCD opportunity can be beneficial in certain circumstances, including when:

  • You have an RMD, which will otherwise bump you into a higher income tax marginal bracket, possibly subjecting you to high income-tax penalties.
  • You have an RMD and will take the standard deduction--the QCD provides a dollar-for-dollar reduction in taxable income similarly to an itemized deduction.
  • You are concerned about the size of future taxable RMDs and want to reduce the value of your IRA account now to reduce future RMDs.

If you are not eligible to use the QCD law, a withdrawal from your account followed by a charitable donation of retirement plan assets may be a "wash" from a tax perspective – your charitable deduction may offset the ordinary income received from the plan.

As always, your tax advisor can run the numbers for you to determine whether a donation using retirement plan assets is a good plan for you.

For More Information

Email us, or call us at 877-307-0158 (toll free) or (434) 924-4154 (direct) so that we may answer your questions and help you through the process.

The materials provided in this website and the examples contained herein are for illustration purposes only and are not intended as legal or tax advice. We encourage you to consult your own legal and tax advisor.