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Wills and Charitable Estate Planning

Gifts from IRAs and Other Tax Deferred Retirement Plans

Gift from your IRA at Death

For a donor who is living, using funds from an IRA, or other tax deferred retirement plans, to make a charitable gift is usually not the best course of action, because such a withdrawal would trigger a tax requirement and maybe even tax penalties as well. (An exception is the IRA Rollover: see below.) A more tax-efficient strategy would be to name Harvest Aviation as the beneficiary of the IRA with the gift to be paid upon your death. This plan is more advantageous because:

  • It removes the money from your estate for estate tax purposes.
  • There is no federal income tax on the amount.
  • There is no state income tax on the amount.
  • Your family is not burdened with the taxes that would be due if they inherited the IRA and multiple other tax issues are avoided.

IRA Rollover (Also known as a Qualified Charitable Distribution)

For donors having sizeable IRAs and other tax deferred savings plans, the IRA rollover can be a useful planning tool to support Harvest Aviation and to save income taxes.

Here are the details, limitations and requirements for an IRA Rollover gift:

  • The donor must be older than 70 and ½ years of age.
  • The gift must be made from a traditional IRA. (Note: It may be possible to transfer funds from other types of plans into a new IRA to qualify.)
  • The gift must go to a 501(c)(3) charity, like Harvest Aviation. Donor advised funds, foundations and some others are not eligible to receive IRA Rollover gifts.
  • The IRA Rollover gift must go directly from the IRA plan administrator to Harvest Aviation. The funds may not go to the donor first and then to Harvest.
  • The most that can be transferred to Harvest is $100,000 per year, per taxpayer (i.e., $200,000 for a married couple).
  • The gift is made tax-free to both the donor and the charity.
  • Amounts given as IRA Rollover gifts count toward a donor’s Minimum Required Distribution in the year in which the gift is made.

IRA Distributions and The SECURE ACT

The SECURE ACT made significant changes to the rules about the distributions from an IRA passed to others as an inheritance, at the death of the IRA owner. Prior to passage of this ACT the rules allowed a non-spousal beneficiary (e.g., a child) to take distribution of an inherited IRA over his/her lifetime. This new rule requires most non-spousal beneficiaries (children and others) of retirement plans after Jan. 1, 2020, to distribute the entire inherited account within 10 years of the account owner’s passing. This change is known as “The Ten-Year Rule.” The 10-year rule applies both to traditional IRAs and to Roth IRAs as well.

There are exceptions to the 10-year distribution rule:

  • Surviving spouse
  • A minor child (10-year rule applies once the minor reaches the age of majority)
  • A disabled individual
  • A chronically ill individual
  • An individual who is not more than 10 years younger than the deceased participant or IRA owner

Prior to this law, beneficiaries could take minimum distributions based on their own life expectancy. For many, this was a tremendous tax advantage. With an individual retirement account (IRA), this was commonly referred to as a “stretch IRA” strategy, and the beneficiaries could stretch the amount of time these accounts stayed open, simultaneously reaping the tax benefits in the process.

The new rule could push beneficiaries into a higher tax bracket and should call for both IRA owners and beneficiaries to reconsider their current estate plans. Donors to Harvest Aviation should be aware that if this new “Ten Year Rule” does have onerous tax effects on their estate plans, they could consider using a Charitable Trust or a Charitable Gift Annuity to mitigate or eliminate this tax burden, which could be considerable.