Gifts of Retirement Assets

Charitable Gifts of Retirement Plan Assets

Contributions to retirement plans can provide an excellent opportunity for growth as they grow tax-free, meaning that the growth or earnings are not taxed annually but can continue to grow. The earnings are taxed when they are withdrawn, but this has allowed more dollars to be invested for more growth. Additional savings can occur if the recipient is in a lower tax bracket when the funds are withdrawn (for example, during retirement) than when the investments were growing.

Required Distributions

Date (RBD) – -April 1 following calendar year at age 70 1/2 (IRA) or later of this date or April 1 following calendar of separation from service (QRP/TSA).

However, careful planning concerning the withdrawals from retirement funds needs to be done. Not only is there a potential income tax burden, but if there is a balance in your retirement account at your death, there must be estate taxes as well. Estimates are that taxes could eat up as much as 80% of retirement assets under certain circumstances. Charitable gifts of Retirement Plans avoid this confiscatory combination of taxes.

Using qualified retirement plan funds is an excellent source of assets to fund bequests. By designating the California Scottish Rite Foundation as a beneficiary (it can be contingent beneficiary after the death of a spouse) funds pass to the California Scottish Rite Foundation free of taxes. It is possible to set up the beneficiary as the recipient of the entire remaining funds in the account or establish a percentage to fund the bequest.

Types of Plans

  • Section 401(a) Plans (Company Plans and KEOGH Plans)
    • Account Plans – -Money Purchase pensions, stock bonus plans, 401(k) plans, profit sharing plans, ESOP’s
    • Annuity Plans – -Defined benefit plans, annuity plans
  • Section 408 Plans (Individual Retirement Accounts) – -IRA’s, Annuities, Simplified Employee Pension (SEP and SEP-IRA, SIMPLE Plans, Roth IRA’s)
  • Section 403(b) Plans (Exempt Org. and Government Employers) – -Tax Sheltered Annuities. TS custodial accounts

Please Note – the designation of the station as a beneficiary of retirement funds assets cannot be simply written in your will or trust. The station must be designated as a beneficiary of the retirement plan.

There are other strategies in using retirement fund assets to fund charitable gifts. For example, qualified retirement fund assets may be placed in a charitable remainder trust by using a testamentary trust to provide for children or a spouse. There may be estate tax savings as a result.

Everyone’s personal circumstances are different, so please consult your tax advisor concerning the use of qualified retirement funds. We would be glad to make suggestions that could be be effective in accomplishing you and your family’s needs and benefit the California Scottish Rite Foundation as well.