Top 3 Creative Ways to Use Your Retirement Assets

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!

“Give It Twice” Trusts: Support Loved Ones

If you wish to use your retirement assets to benefit children or other heirs in addition to a nonprofit, a testamentary charitable remainder unitrust, also known as a “give it twice” trust, is a promising solution. You can create a “give it twice” trust with a provision in your will naming the trust as the beneficiary of your retirement assets. After your lifetime, the trust will provide payments to your children or other beneficiaries for a designated number of years before distributing the remainder to the charity of your choice.

Unlike leaving your retirement accounts to your heirs directly, a “give it twice” trust preserves the full amount of your assets, and loved ones only pay taxes on the payments they receive. This method is especially beneficial following the 2019 SECURE Act’s changes to the stretch IRA, Hailey said. Previously, a stretch IRA allowed beneficiaries to withdraw assets from an inherited IRA throughout their lifetime, but now they must withdraw the assets within 10 years.

In contrast, a “give it twice” trust provides payments for the beneficiaries’ lifetime or a period of up to 20 years. “This is a great way to give to charities,” Hailey said. “The beneficiary can get income for life, and it goes out as a tax-free distribution to charity at the end.”

Watch our charitable remainder trusts video to learn more about “give it twice” trusts.

IRA Charitable Rollover: Give During Your Lifetime

Although many people give retirement assets after their lives through methods such as beneficiary designation gifts, anyone age 70.5 or older can use their IRA to immediately impact the causes they care about by making an IRA charitable rollover.

Everyone age 72 or older is required to take a minimum distribution from their IRA each year. An IRA charitable rollover fulfills this requirement while avoiding additional income taxes by allowing you to distribute some or all of the required amount directly to a public charity like the Texas A&M Foundation. The process is simple: You contact your IRA administrator to make a gift of up to $100,000 each year directly from your IRA to the charity of your choice.

No matter how you wish to give retirement assets, planning is key, Hailey said. “You should always talk to a tax advisor or financial planner to see which method best fits your financial situation,” he explained. With the proper advice, you can rest assured that your extra retirement assets will impact your charitable passions for years to come.

Want to learn more about options for giving retirement assets? Contact Angela Throne ’03 at (979) 845-5638 or by submitting a message through the form below.