Retirement Assets

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 outside 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 outside 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), typically 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 taxable.  Depending on your annual income, your federal income tax alone on a withdrawal from your qualified retirement plan could be as high as 37%.

Withdrawals are Required Once You Reach 73 Years Old

You must start taking withdrawals from your qualified retirement plan once you reach 73 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 as high as 37%. When you add federal income tax and estate tax together, and even considering available deductions to reduce double taxation, the combined taxes can be very high, perhaps up to 62% or more. In states that assess their own taxes on estates, the total taxes on retirement plan assets paid to heirs can be even higher.

Give Retirement Plan Assets to St. Anthony Shrine and Save Taxes

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

Planning for how to minimize the tax burden on your surviving family members while including St. Anthony Shrine in your plans takes careful consideration. You should consult with your estate planning attorney and/or financial advisors to develop a plan for your retirement benefits that best suits your situation.

How do I Pass Retirement Plan Assets to St. Anthony Shrine?

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 St. Anthony Shrine 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 St. Anthony Shrine as a beneficiary of your plan and name the percentage of your remaining plan assets that you want us to receive. The retirement plan assets that you designate for us can avoid being subject to income tax and estate tax. In order for your estate to enjoy both of these tax benefits, St. Anthony Shrine should be specifically-named as the designated beneficiary of these retirement plan assets, not your estate. Please identify us on the form with our legal name: St. Anthony Shrine, Order of Friars Minor Province of the Most Holy Name.

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 designated beneficiaries. The SECURE Act requires an inherited IRA to distribute all of its assets within 10 years, with certain exceptions, such as if your spouse is the named beneficiary.  With the elimination of the stretch IRA for many potential beneficiaries, an attractive option for planning so that inherited retirement plan assets can pay income for life is to designate a charitable remainder trust as the beneficiary of your retirement plan. Passing assets to us through a charitable remainder trust 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 such a life income plan works:

• Your retirement plan transfers the designated portion of its final balance to a charitable remainder trust.
• The beneficiaries you name in the trust receive payments from the trust each year, for the term stated in the trust, which could be up to 20 years or for life .
• When the trust ends, its remaining principal goes to support St. Anthony Shrine.

Using retirement plan assets to fund a life income plancan spread out income tax and reduce 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.

Whether naming a charitable remainder trust as the beneficiary of your retirement plan is right for you will depend on a variety of factors.   Please contact us if you would like to learn more about funding a charitable remainder trust with assets from your retirement plan. Of course the final decision should be made by you after consulting with your advisors.