Gifts from Retirement Plans

A deferred gift created through any of a number of government approved, or “qualified” plans that allow individuals to make pre-tax contributions that grow tax-free in the plan. Income is taxed when distributions begin, usually at age 70½.

The Secure 2.0 Act and the QCD

The “Expanding Coverage and Increasing Retirement Savings” Act, aka the SECURE 2.0 Act, which went into effect on January 1, 2023, changes many of the rules governing retirement plans, including several provisions relevant to making charitable IRA rollover gifts (also known as qualified charitable distributions or QCDs.)

Under the SECURE 2.0 Act, the charitable IRA rollover, or QCD, remains a terrific way to make a tax-free gift to Clarkson University using your traditional IRA.

How Do I Qualify?

  • You must be 70½ years old or older at the time of the gift
  • Gifts must go directly from your IRA to Clarkson University
  • Gifts must come from a traditional or Roth IRA account
  • Gifts cannot exceed $100,000 per donor per year
  • You cannot receive a benefit in return for your gift, such as tickets to a gala

Benefits of a Charitable IRA Rollover Gift (QCD)

The SECURE 2.0 Act increased the age at which you must start taking required minimum distributions (RMDs) from 70½ to 73. Once you reach 73, one of the great benefits of a QCD is that it will count towards your RMD. However, even if you have not reached age 73, there are still good reasons to consider a QCD at 70½.  First, a QCD offers all the benefits of an income tax charitable deduction, even if you don’t itemize your deductions.  You can’t claim a deduction for your QCD, but your QCD is not included in your income.  Your QCD is always a tax-free gift.

Another reason to consider a QCD at 70½ is to reduce the balance in your IRA.  At age 73 or older, your RMD is based on the balance in your IRA at the end of each year multiplied by a factor published by the IRS.  You may be in a position where you don’t want or need the income from your IRA.  Higher income can increase your Medicare premiums and create other tax issues.  Consider making QCDs starting at 70½ to reduce the balance in your IRA.

Another change brought on by the SECURE 2.0 Act is the elimination of the stretch IRA for many beneficiaries. With a few exceptions, children and other non-spouses who are more than 10 years younger than you no longer can stretch their withdrawals from an IRA they inherit from you over their life expectancy. Instead, they must withdraw and pay income tax on all funds within 10 years. This change means that it may be most tax efficient for you to support Clarkson and provide for your heirs by making QCDs during your life and setting aside other assets to pass on to your loved ones.

Click to review IRA Charitable Rollover guidelines.

Further Information
Retirement plans include assets held in Individual Retirement Accounts (IRAs) and assets held in accounts under 401(k) plans, profit-sharing plans, Keogh plans, and 403(b) plans. Contributions may be made to these plans with pre-tax income, and the plans grow tax-free. Income is taxed when distributions begin, usually at age 70½. There are penalties to avoid, such as taking distributions before age 59½, or not taking minimum distributions after age 73, or retirement, whichever comes later.

Depending on your circumstances, deferred gifts created through your retirement plan might count at full value in Clarkson fundraising campaigns and in anniversary reunion fundraising. Contact the Annie Society for details.

Tax and Financial Implications
Retirement plans help conserve wealth for our later years. Unfortunately, many of us forget that these plans are also included in our estate. Because retirement plans are “IRD” assets (Income in Respect to a Decedent), heirs to these plans will pay income tax on the distributions just as you do now. If your estate is large enough, the plan may be reduced by estate tax as well. And finally, if the plan passes to a “skip generation” (e.g., grandparent to grandchild) it may also be subject to generation skipping transfer tax.

This single, double or even triple taxation makes retirement plans an attractive and tax-advantaged means to plan a gift to Clarkson. Since retirement plan assets that are gifted to Clarkson are not taxed, it is often suggested that other non-IRD assets are left to heirs and retirement plan assets are left to Clarkson, thus saving income and potentially estate and generation skipping taxes in both cases.

Since the rules and procedures vary from plan to plan, you should contact your plan administrator to determine the options to structure a gift to Clarkson. Your plan may allow Clarkson to be a sole, partial, percentage or contingent beneficiary. In some cases a sub-account is established within the plan to “hold” the eventual gift to Clarkson and avoid any unintended complications to other retirement plan heirs.

An alternative for retirement planning is the “Roth” IRA. This option differs from traditional retirement plans in that contributions to the plan are made from after-tax dollars. Thus, the distributions you receive from the plan in future years are income tax free. Roth IRAs are generally not considered a tax-advantaged way to plan gifts to charity.

A gift planning strategy for plan owners who are “forced” to take annual distributions is to use the income to create charitable gift annuities or charitable remainder trusts, thus offsetting some of the income tax due on the distribution and generating income for future years.

It may also be possible to structure a gift from your retirement account to fund a testamentary charitable remainder trust. In this way your heir(s) would receive income for life or a term of years before the remainder from the trust passes to Clarkson.

Another retirement planning option: Another option to plan retirement income in addition to traditional retirement plans is to create a “flip-CRUT” or a series of deferred gift annuities. You make annual gifts to the plan, generate an immediate income tax charitable deduction and allow the asset to grow tax-free (trust) or capture a higher payout rate each year (gift annuity). At some predetermined point in the future (like retirement) the plan begins making payments to you. This option is especially attractive if you have reached the limit on the amount you may contribute to a traditional retirement plan.

Process to Create
While every gift situation is unique, there are several steps that may be outlined to help clarify the process.

  1. You decide. Philanthropy is a lifelong process. At some point you may wish to express your thanks to Clarkson and help ensure the Clarkson experience, and decide that a gift through your retirement plan is a place to begin.
  2. We talk. You may wish to speak with the Annie Clarkson Society to make sure that your wishes can be accomplished at Clarkson, and to create the necessary documentation so that those who come after us can fulfill your intentions.
  3. You talk. You may meet with your plan administrator, and maybe your financial and legal advisors, to discuss your goals and craft your plan to include Clarkson.
  4. You sign. You make a final review and sign the appropriate documents with your advisor(s), creating or modifying your plan.
  5. You relax. You have just connected yourself with the past and the future as you continue the good work of those who came before you and prepare the way for those who will come after you. Enjoy the moment!

What to Expect After Your Plan is Created

The creation of your plan is the start of a new relationship with Clarkson:

  • If you are a new member of the Annie Clarkson Society, you will receive letters of welcome.
  • As an Annie Clarkson Society member, you will receive the Society newsletters and annual report each year.

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This web page does not provide legal or financial advice, nor is it a comprehensive review of the topic. You should consult your legal and financial advisors and Clarkson University before making or planning your gift.