Gifts of Retirement Funds

Designating Labouré as a beneficiary of your pension plan, 401(k), or IRA

By naming a charitable organization as beneficiary of your retirement plan, you may save your beneficiaries money in federal taxes on many levels. First, designating Labouré as the beneficiary will remove the value of the retirement assets from your gross taxable estate. Additionally, because contributions to your retirement plan were not likely subject to income taxes at the time of contribution, nor were taxes payable as they appreciated in value over the years, distributions that a beneficiary receives from a retirement plan will not be subject to federal income taxes upon receipt. However, since Labouré is a nonprofit and is exempt from taxes, it is not required to remit any portion of the distribution to the IRS.

For example, assume that Bob owns a 401(k) account that has a value of $50,000 at the time of his death, and that he designated his niece Maria as beneficiary. If Bob’s estate is taxable, Maria may only be entitled to as little as $30,000 in distributions. Further, as Maria received distributions from the 401(k) plan, she would be required to pay income taxes on such distributions, and therefore would likely only receive a net benefit of $20,000 depending on her income tax bracket. However, Labouré, as a charitable organization would receive benefit from the full $50,000, as compared to only $20,000. In addition Bob’s estate would receive an estate tax charitable deduction for gifting the 401(k) to Labouré.

As to traditional retirement accounts, if you are a retiree, you typically need to pay income tax on withdrawals from those accounts. And once you turn 70.5 annual IRA withdrawals become mandatory. There is a 50% tax penalty if you miss a distribution. However, if you are in the fortunate position of not needing your IRA distributions to pay for living expenses, you can avoid income tax on the withdrawal if you donate it to charity.

If you are 70.5 or older and you directly transfer your IRA withdrawals of up to $100,000 to a qualified charity like Labouré you will not owe income tax on the distribution. A charitable distribution from your IRA can be used to satisy your minimum distribution requirement.

 

A nontaxable charitable distribution must be made directly from the trustee of the IRA to a charity like Labouré. If you withdraw the money yourself and then donate it to Labouré you will need to pay income tax on the distribution. Contributions from workplace retirement accounts like 401(k)s and 403(b)s are not eligible for this same tax break, but you could roll the money over to an IRA and then make a contribution directly to Labouré. As explained above, you must be at least age 70.5 at the time the distribution is made.