Retirement Accounts


A new law was recently enacted that allows donors age 70 1/2 and older to transfer up to $100,000 each year from their IRA’s tax-free to Saratoga Bridges.  A couple could each give up to $100,000 per year for a total of $200,000.  This new law results in less tax and greatly simplifies giving for individuals who have amassed retirement savings beyond their needs. In addition, the change creates a new opportunity to make larger gifts to endowments.

Retirement accounts such as 401(k), IRA or Keogh plans will be subject to taxes if following the owner’s death, the account passes to someone other than the owner’s spouse.  If, instead, such accounts are left to charity at death, they will be subject to no taxation.  By naming Saratoga Bridges as the primary beneficiary of a retirement account the account will pass to Saratoga Bridges upon the death of the owner.

Retirement Accounts as part of an Estate Example

Rosemary wants to leave $1,000,000 to Saratoga Bridges and the balance of her estate to her daughter, Jeanne. Her estate includes qualified retirement-plan benefits worth $1,000,000.  Regardless of what asset she chooses to fund her gift to Saratoga Bridges, her estate will qualify for a $1,000,000 charitable deduction. Assume the estate tax on this amount is $490,000 (49% of $1,000,000). If Jeanne were to receive the retirement-plan benefits, she would pay income tax on the $1 million less the amount of the net federal estate tax on the inclusion of the retirement plan in Rosemary’s estate. The net federal estate tax on the retirement plan is $414,400, so Jeanne would have to pay income tax on $585,600 ($1,000,000 less $414,400)- $204,960 in her 35% tax bracket. This would leave Jeanne a net inheritance of $305,040 from the retirement account ($1,000,000 less $490,000 less $204,960).  Since Rosemary decides to leave the retirement-plan benefits to Saratoga Bridges, neither Saratoga Bridges nor Jeanne will have to pay any income tax on the retirement account. This saves Jeanne the $204,960 that would otherwise have been paid in income tax.  If you are married, you and your spouse may want to use the retirement accounts to fund his or her own retirement. Each will name the other as the primary beneficiary of the retirement accounts, and each will be responsible for paying the income tax but not estate tax when he or she withdraws funds from the accounts. If they wish to use the retirement accounts to benefit charity after they both die, they can do so by naming charities as the contingent beneficiaries of their retirement accounts. The retirement accounts thus pass to charity rather than to your their children (or other individual beneficiaries), and are not subject to taxation.