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Retirement Plan Designations

Update on IRA Charitable Rollover

With the Pension Protection Act of 2006 our friends aged 70 1/2 and above were able to make tax-free rollover gifts (up to $100,000) from their IRA to UL in 2006 and 2007. The continuation of this special gift opportunity for 2008 will require action by Congress. It is likely to be extended and we are asking alumni & friends to continue to plan for a potential IRA charitable rollover gift in the fall of 2008. For questions, please call us at (337) 482-0922. Or you can click on the link below to e-mail UL's planned giving director with questions or to get more information.

E-mail David Comeaux

RETIREMENT PLANS FACE DOUBLE TAXATION

An increasingly important element in estate planning is the retirement accounts (IRAs, 401ks, etc.) that you have been accumulating tax-free. You may be inclined to name your children, niece/nephew, or others as the beneficiaries of the account. However, did you know that if an individual other than your spouse is named, whatever remains in your account can be taxed twice?

Unlike other property (i.e., cash, stocks, etc.) that passes to your heirs and may be subject only to estate tax, the balance of your retirement account (except in the case of Roth IRAs) is subject to income tax as well. And it is your heirs who will have to pay it.

Example of the Taxation on Retirement Accounts

(based on maximum tax rates)

IRA Value: $250,000
Less 45% Estate Tax ($112,500)
Less 35% Income Tax ($46,375)

Net To Heirs: $91,125

Total Tax as a Percent : 63.5%

How can you reduce or eliminate the taxes on Retirement Plan accounts?

Avoid undesirable tax costs with thoughtful estate planning. Making a charitable gift from your retirement plan is an innovative way to support UL and save taxes. With a little planning, both the University and your heirs can enjoy increased benefits.

What are your options for using a retirement plan account to reduce taxes and make a gift to UL?

1. Special IRA Charitable Rollover opportunity may be extended for IRA owners aged 70 1/2 and above

Thanks to the Pension Protection Act of 2006, persons aged 70 1/2 and above were able to make a gift distribution of up to $100,000 (in 2006 and 2007) from their IRA to UL and not have to recognize the gift distribution as income; therefore, you (the donor) do not have to pay income taxes that you would otherwise have to pay on the distribution.

The continuation of this special gift opportunity for 2008 will require action by Congress. It is likely to be extended and we are asking alumni & friends to continue to plan for a potential IRA charitable rollover gift in the fall of 2008. For questions, please call us at (337) 482-0922. Or you can click on the link below to e-mail UL's planned giving director with questions or to get more information.

2. Name the UL Lafayette Foundation as a Beneficiary of your IRA or Retirement Plan

Naming the UL Lafayette Foundation as a beneficiary of all or part of an IRA or retirement plan can achieve both estate tax and income tax savings. The funds will avoid estate tax, leaving for your heirs those assets not subject to additional income taxes. UL, as a non-profit organization, will not pay income tax and your heirs will receive their share of your estate without the burden of more taxes.

Use your plan's beneficiary form so that UL can receive an outright distribution from your IRA following your death. The UL Lafayette Foundation can also be named a contingent beneficiary subordinate to you and your spouse. If you wish to leave part of your IRA to UL, it is best to create a separate IRA for your spouse and one for UL. Check with your plan administrators for the best alternative for your needs.

Use your retirement plan's beneficiary designation form – not your will! Retirement plan assets should not be used to satisfy a specific monetary bequest in your will or your estate may end up paying more taxes. The estate will be treated for income tax purposes as receiving a distribution of retirement plan assets and using those assets to satisfy the estate's obligation to pay the bequest. In such instances, the intended charity should only be named as the direct beneficiary of the retirement plan assets on the appropriate beneficiary designation forms supplied by the retirement plan administrator or custodian.

3. Use your Retirement Plans to Fund a Charitable Remainder Trust (CRT)

Have the balance of IRAs or retirement plans transferred at your death to a charitable remainder trust. The trust will pay income to a surviving spouse or other heirs for their lifetimes or a period of years.

If your spouse is the beneficiary, no estate tax is due on the funds. If others are beneficiaries, the charitable deduction will reduce the estate tax. In either case, the transfer of assets will not trigger income tax. Because of the tax savings, the income beneficiaries could potentially receive more income/assets by utilizing the charitable remainder trust than if they had received the retirement assets outright.

4. Eliminate or Reduce Tax on your Required Minimum Distribution

Once you reach age 70 1/2, you must begin taking minimum distributions out of your IRA or other retirement plan. If the Pension Protection Act of 2006 is extended for 2008, income tax may be avoided on minimum distributions of up to $100,000 from IRAs by making a direct contribution of the miminimum distributon amount to a qualified charity like UL.

For retirement funds other than IRAs, you may be able to reduce or eliminate income taxes on minimum distributions by making an outright gift of the minimum distribution proceeds to UL while receiving an offsetting charitable deduction.

For more information about planning a gift through a Retirement Plan Designation, please contact David Comeaux, Director of Planned Giving, at (337) 482-0922 or send him an e-mail.

Email David Comeaux