Gifts through retirement plans

Retirement Plans (an IRA or a 401(k) or 403(b)): Retirement plans are often one of the largest assets people have in their estate.  If a donor leaves a portion of a qualified plan, like an IRA or a 401(k) to anyone other than a spouse, that person will be limited to a maximum of ten years to withdraw the money and will have to pay income tax on any money withdrawn.  A nonprofit, however, pays no tax.  Naming TMI as a partial beneficiary of a retirement plan is easy, often involving no more than changing a beneficiary on-line. 

Example: Dan, who would like to make a gift through his estate, has an IRA worth $1,000,000. As he is married, he knows he can roll over his plan to his wife with no tax consequences. But he would also like TMI to benefit from his largest asset; thus he makes TMI a 10% beneficiary of his IRA.

Example: Sarah has a $500,000 403(b) that she has accumulated over the years.  She would like to make sure her children have the income from what is left in the plan after her death, but she wants to be able to spread out their income over more than ten years, which is the maximum number of years to roll over an inherited IRA to someone other than a spouse under the new SECURE Act of 2020. By designating a 20-year charitable trust the beneficiary of the plan and her children the income beneficiaries of the trust,  she can avoid the upfront income tax, provide an income to her children for twenty years, and make a long-term substantial gift to TMI.  

If you would like more information on how to make TMI a beneficiary of an insurance policy or a retirement plan, click here.