Using retirement fund assets to make a gift to Marquette
Avoid double taxation on retirement plan assets
While the primary purpose of retirement plan assets is to provide a source of income during retirement, in many cases substantial balances remain after death. When left to family members (other than a spouse) or friends, these gifts can be subject to considerable taxes, including estate and income taxes. Why? Because these assets have been allowed to accumulate free of income taxation, the owner is required to pay income taxes on the withdrawals made during retirement. If, upon death, the owner leaves these remaining assets to individuals other than a spouse, the assets are considered part of the owner’s estate – and thereby possibly subject to estate taxes – and the beneficiaries must pay income taxes on the withdrawals as the decedent did during life. Retirement plans are consequently referred to as income in respect of the decedent (or “IRD”) assets.
You can avoid paying estate tax, if applicable, and income tax on retirement plan assets left to nonprofit organizations like Marquette. That is why retirement plan assets are considered tax-efficient gifts to charity and why other non-IRD assets are better suited as gifts to your heirs.
What steps do I need to take?
Contact your retirement fund/account manager and ask him for a beneficiary designation form.
Sample beneficiary designation language for retirement fund assets
On the beneficiary designation form itself: Print “Marquette University – See Attachment A” on the line provided to name beneficiaries. Indicate desired percentage or amount to go to Marquette in the appropriate space provided on the form. Sign and date the form as necessary. Example:
(See Attachment A)
On the attachment, include the language below. In addition, follow the same execution requirements as on the beneficiary designation form itself. For example, if a witness needs to sign the beneficiary designation form, ask the witness to sign the attachment as well.
Attachment A to (insert your name)
Beneficiary Designation Form
For an unrestricted gift or gift for a specific purpose:
To Marquette University, or its legal successor organization, to be used for (inser desired use, such as: its general purposes, scholarship, a particular college or program).
Gift for endowed scholarship:
To Marquette University, or its legal successor organization, to be used to fund the (insert name) Endowed Scholarship Fund, under agreement dated (insert date) between (insert your name), as Donor, and Marquette University. If no such agreement is then in effect, then such funds shall be distributed to Marquette University to be used to establish the (insert desired name) Endowed Scholarship Fund to provide scholarships for one or more students in (insert particular college or program). If this gift does not meet the minimum threshold then in place to establish a named endowed scholarship fund at Marquette University, then such gift shall be added to the general endowed scholarship fund.
IRA charitable rollover permanently reinstated
If you are 70½ or older, you can roll over up to $100,000 from your IRA to Marquette University.
- Your gift will count against your required minimum distribution for the year.
- Your taxable income will be reduced, even if you do not itemize deductions.
- You will not be subject to the 50% limitation on charitable gifts.
To make an IRA rollover gift, simply contact your IRA custodian and request that an amount be transferred to Marquette University by wire or check. Gifts for the 2016 tax year must be made by Dec. 31, 2016. Checks must be made payable to Marquette University and sent to the following address:
Marquette University Advancement
ATTN: Amanda Cose
1250 W. Wisconsin Ave., Suite 421
P.O. Box 1881
Milwaukee, WI 53201-1881
- These gifts do not qualify for an additional charitable deduction – not being taxed on the withdrawal is usually more tax advantageous than a charitable deduction.
- Only standard IRAs are eligible; other retirement accounts such as 401(K), 403(b), SEP, and KEOGH plans cannot be used to make an IRA rollover gift, but they can be rolled into an IRA in anticipation of an IRA rollover gift. (Check with your financial advisor.)
- Donors of IRA rollover gifts cannot receive any personal benefits, such as Marquette Men’s Basketball priority points, in connection with the gift. Similarly, planned gifts, such as charitable remainder trusts and gift annuities, which provide the donor with periodic income payments, are not eligible to receive IRA rollover gifts.
Quick tip: What if I choose to name my children as 50% beneficiaries and Marquette as a remaining 50% beneficiary?
- Children have the ability to stretch out the funds they receive (minimum required distributions) from an IRA.
- By including a charity, the ability of the children to stretch out distributions for maximum tax deferral can be hindered unless Marquette’s share is paid out by September 30 in the year following the year the owner dies.