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The Free Methodist Foundation
8050 Spring Arbor Road
PO Box 580
Spring Arbor, Michigan 49283
phone: 517.750.2727
toll free: 800.325.8975
fax: 517.750.2752
email: info@fmfoundation.org
Giving Through Retirement Plans
Through thoughtful retirement planning you can help assure your family's economic future, experience significant tax benefits, enjoy increased income and other advantages, and arrange your charitable "gift of a lifetime."
Minimizing the impact of taxes
Careful planning can minimize the taxes due during life and death. One alternative is to take advantage of incentives Congress has included in our nation's tax laws to encourage gifts to organizations and institutions that help meet social needs.
Rather than see retirement assets absorbed by income and possibly estate taxes, individuals can direct in advance that such assets be used to make charitable gifts from their estates. They thus preserve other non-retirement assets for their families.
Amounts left from retirement plans for charitable use are still included in the taxable estate, but they are then fully deductible from the estate as charitable gifts. The full use of the amount will generally be received and used for charitable purposes with no income tax due.
Other assets can then be left to family members. As long as the total value of these assets does not exceed the taxable threshold (presently $675,000), they will be received by heirs free of both federal income and estate taxes.
A simple plan to accomplish
After you have discussed your situation with your tax advisor and decided you wish to make a gift from your accumulated retirement assets, the procedure is simple. Ask the administrator of your plan for a "change of beneficiary" form. Simply indicate the amount or percentage of the assets you wish to be used for charitable purposes, should you not need the assets during your lifetime. If you desire to retain a life income for your spouse (and perhaps your children), contact The Free Methodist Foundation for assistance.
You can change your beneficiary at any time in the future, as you wish.
Providing a future income for others
You can arrange an eventual charitable gift of all or a portion of the assets in your retirement accounts, while you also use proceeds from your retirement plan to help family members or others for a period of time. You can stipulate that the assets in your plan at death be held in a special arrangement which will provide income for whomever you name either for life or for a period of years as you determine.
Known as a charitable remainder trust, such a plan assures that:
Loved ones receive an income
The balance of the funds eventually benefits one or more charities
Estate taxes which might otherwise be due on the retirement plan assets will generally be less
Income taxes payable on the retirement plan balance will be reduced
Making gifts today
You may also find that your retirement plan might be an excellent "pocket" from which to make charitable gifts today.
If you are at a point in life when you can withdraw funds from your retirement account without an early-withdrawal penalty (age 59 1/2), you might find it convenient and good tax planning to withdraw funds from your account in order to make your gifts.
Example: Jerome and Allison M. have made a commitment to make a charitable gift over a five-year period.
After consulting with their tax advisors, they decide to make an annual withdrawal from Jerome's retirement account to fund the gift. While they will report the amount of the withdrawal each year as taxable income, it may be fully deductible as a charitable gift, often resulting in a "wash" for income tax purposes.
Jerome and Allison anticipate that his plan will earn enough annually (tax-free) to cover the gifts, so the balance of his fund should be unaffected. Jerome's account is approaching the maximum that can be accumulated without penalty, so this practice may be good long-range tax planning, as well.
Supplementing retirement plans
Over the past several years Congress has taken steps to limit the amount that can be accumulated in tax-preferred retirement plans.
If you are limited in this accumulation amount, you can contribute remainder gifts with retirement plan assets at death, but you can also make such arrangements using other assets during life. A variety of planning arrangements can be used to augment other retirement plans. These gift plans feature income-, capital gains-, gift-, and estate- tax advantages. More information regarding this type of gift is available to you and your advisors upon request by contacting The Free Methodist Foundation.