Giving Through Your Will

Gift Planning

Your IRA, 401(k), 403(b), or other Qualified Retirement Plan can provide a tax-smart way to make an impact on Baystate Health Foundation either now or after the end of your lifetime. The Qualified Charitable Distribution or QCD (sometimes called an “IRA Charitable Rollover”) is a great way to make a tax-free gift now to Baystate Health Foundation and satisfy your Required Minimum Distribution (RMD) too.

A gift of retirement plan assets could be right for you if:

  • You have an IRA or other Qualified Retirement Plan such as a 401(k) or 403(b).
  • You do not expect to need all of your retirement plan assets during your lifetime.
  • You have other assets, such as securities and real estate, that you want to pass to heirs.
  • You want to provide income or payments to loved ones after you are gone.
  • You would like to make a charitable bequest to Baystate Health Foundation.

Option 1: Make a tax-free gift now with a Qualified Charitable Distribution (an “IRA Charitable Rollover”).

You can make a tax-free gift with a Qualified Charitable Distribution (QCD) from your IRA. (Other Qualified Retirement Plans such as 401(k)s and 403(b)s are not eligible). You must be at least 70½ years old to take advantage of this opportunity. Your QCD must go directly from your IRA administrator to Baystate Health Foundation. The total of all of your QCD gifts in any one year cannot exceed $100,000 per person however, your spouse with a separate IRA can also make a QCD of up to $100,000 per year if they otherwise qualify.

The benefits of a QCD gift include:

  • If you don’t itemize your income tax deductions, a QCD provides the tax benefits of an itemized income tax charitable deduction.
  •  If you are age 72 and must take a Required Minimum Distribution (RMD), your QCD gift can satisfy your RMD without increasing your income taxes.
  • Your gift provides immediate support for the important work of Baystate Health Foundation with a tax-free gift.

Option 2: Designate your remaining Qualified Retirement Plan assets as a contribution to Baystate Health Foundation.

Another attractive option is to designate Baystate Health Foundation as the recipient of some or all of what’s left in your IRA, 401(k), 403(b), or other Qualified Retirement Plan at the end of your lifetime.

In addition to having the satisfaction of making a significant future gift to Baystate Health Foundation, your benefits include:

  • Your estate is entitled to an unlimited estate tax charitable deduction for the value of your Qualified Retirement Plan donated to Baystate Health Foundation.
  • Since Baystate Health Foundation is tax-exempt, there will be no income taxes paid on the distribution to Baystate Health Foundation.
  • A tax-smart estate planning strategy is to contribute taxable Qualified Retirement Plan assets to Baystate Health Foundation and preserve non-retirement plan assets for your heirs.
     

Note: Directing your Qualified Retirement Plan to charitable and noncharitable beneficiaries can accelerate the income tax. Always consult with your advisors before naming the beneficiaries of your Qualified Retirement Plan.

Option 3: Designate your remaining Qualified Retirement Plan assets for a life income plan.

Alternatively, you can designate that at the end of your lifetime some or all of the assets remaining in your IRA, 401(k), 403(b), or other Qualified Retirement Plan be used to fund a charitable remainder trust or charitable gift annuity that will make payments to family members or other loved ones for the rest of their lives. When the life income gift arrangement ends, what is left will go to Baystate Health Foundation.

In addition to having the satisfaction of making a significant future gift to Baystate Health Foundation, your benefits include:

  • A charitable remainder trust or charitable annuity can provide a lifetime of income or payments to your chosen beneficiary.
  • The gift portion of your charitable remainder trust or charitable gift annuity provides an estate tax charitable deduction if your estate is subject to estate taxes.
  • A tax-smart estate planning strategy is to contribute Qualified Retirement Plan assets for a life income gift and preserve non-retirement plan assets for your heirs.
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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 and capital gain realized by their investments. This allows their assets to grow faster than if you held and invested these assets outside of your retirement plan.

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 70 ½ years old
You must start taking withdrawals from your qualified retirement plan once you reach 70 ½ 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%.

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

Life income plan options 
There are several life income plan options to choose from. The one that is right for you will depend on a variety of factors. Please contact us if you would like to learn more about funding a life income plan with assets from your retirement plan.

Example

Raymond Harmon, 75, is a retired business executive who has accumulated $500,000 in the retirement plan that he set up through his company years ago. He takes minimum distributions from his plan in order to preserve as much tax-free growth inside the plan as he can. At this rate, he expects that his account may still be worth $500,000 when he dies.

Raymond has reached the time in his life when he has begun thinking about the legacies he wants to leave behind after he is gone. He decides to leave a bequest to Baystate Health Foundation to create an endowed fund that will perpetuate generous support in his name. To accomplish his goals, he designates 40% of the final balance in his retirement account for Baystate Health Foundation.

Benefits

  • There will be no income tax or estate tax on the $200,000 of Raymond's retirement plan assets that are transferred to Baystate Health Foundation. If Raymond were to pass the same amount to his family and make his charitable gift with stock instead, his 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 Raymond's estate was large enough to pay estate tax. 
  • Raymond has the immediate satisfaction of knowing that he has put a gift plan in place that will keep his name alive and support Baystate Health Foundation long after he is gone.

 

How Your Gift Helps

Your gifts to Baystate Health Foundation help us improve the health of the people in our communities every day, with quality and compassion. Your generosity provides Baystate Health with the resources to…

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