Qualified Pension and Retirement Plans

Naming a charitable organization as beneficiary eliminates payment of the deferred income tax and also provides a charitable estate tax deduction for the full value of the gift.

What does it mean to make a gift from a qualified pension or retirement plan?

For many people pension and/or retirement plans constitute their largest asset. If there is more than enough to provide for retirement, one must decide who will receive the remainder at death. Naming a child or other loved one as beneficiary would mean that they then owe the income tax that has been deferred. Naming a charitable organization as beneficiary avoids the income tax and also provides a charitable estate tax deduction for the full value of the gift.

What are some benefits of giving a retirement plan?

It is easy to do. Donors who wish to make a gift from a retirement plan may do so by simply contacting their plan administrator and designating Oxfam America as beneficiary.

Giving qualified plan assets to Oxfam is the most tax effective way of giving to charity. The donor gets a double benefit:

The deferred income tax which would be due upon distribution to an individual beneficiary is exempted for distributions to a charitable beneficiary; and

The pension or retirement plan account which would normally be subject to estate taxes, is instead deducted from the taxable estate.

Strategic estate planning allows a donor to include a significant gift to Oxfam in their plans (through saving on income and estate taxes) while giving less tax burdened assets to family and loved ones.

What are some details and tax issues regarding gifts from qualified pension and retirement plans?

A beneficiary designation is revocable and therefore does not qualify for a current income tax charitable deduction. However, at death the estate receives a charitable deduction for the full value of the assets.

Since calculating the "minimum required distribution" (which begins at age 70 1/2) does not take into account the identity of the designated beneficiary (unless the designated beneficiary is a much younger spouse) naming a charity as beneficiary will not impact on the required distribution amounts.

If there are multiple beneficiaries, individuals and charity, you may want to consider having the portion for the charitable organization held as part of a separate account to remain eligible for estate tax deduction and income tax exemption.

Designating retirement and/or pension assets to fund a Charitable Remainder Trust at death is also a tax wise strategy. You will avoid all income taxes, provide an annual payout to your chosen beneficiary for life or a term of years (not to exceed 20 years), and the value of the remainder interest to benefit charity will pass free of estate taxes into the Trust.

Contact our gift planning specialist for more information.