Planning for retirement is an important consideration during your career. Retirement plans—such as individual retirement accounts (IRAs), 401(k)s, 403(b)s, profit sharing plans and simplified employee pension (SEP) plans—are valuable tools in the process. According to a study published by the Investment Company Institute, Americans had $34.9 trillion in retirement assets at the end of 2020.
For many individuals, retirement assets can also be a useful charitable tool. Giving from your retirement account to a qualified nonprofit like the Texas A&M Foundation not only impacts your passions but also offers significant tax advantages. “Giving retirement assets is a win-win,” said David Hailey ’87, president and principal of Paragon Financial Advisors. “It’s a way to minimize your taxes while still giving to charity.”
Read on to learn the top ways to give retirement assets and how each method can benefit you.
Beneficiary Designation Gift: Create Tax-Free Impact
Many retirement assets are heavily taxed if passed to heirs, which can leave your loved ones with less than half of the amount you intended. One solution? Give the account to a nonprofit after your lifetime with a beneficiary designation gift. Retirement assets pass tax-free to nonprofits, eliminating the tax burden on friends or family while ensuring your assets provide maximum impact on your philanthropic passions.
You simply fill out a beneficiary designation form naming a qualified nonprofit as the beneficiary of your account and return the form to your account administrator. You can then leave other lower-taxed assets, such as real estate or securities, to your heirs.
A beneficiary designation gift is extremely flexible. You can continue fully using your account and make changes or add new beneficiaries at any time. You can also designate whether a beneficiary will receive the full remainder of your account or a partial amount. In addition, you can leave your account to your spouse first, who is exempt from the taxes your heirs would encounter, and name a nonprofit as the “contingent” beneficiary that will receive the assets if your spouse passes before you.
Learn more about beneficiary designation gifts in our animated video!