Planning Your Gift
Pension Protection Act of 2006
Committee on Development Meeting
October 13, 2006
Retirement plan assets have been a frequent topic at these meetings. Si Keehn and others have noted that perhaps as much as 65 cents of every dollar in an IRA could be consumed by taxes. The conventional wisdom has been, and continues to be, to make Hamilton the successor beneficiary of IRAs and other qualified plans. The chart below demonstrates the benefits.
Assumption: $1,000,000 IRA at the death of the survivor of husband and wife
Estate Tax $460,000
Income Tax -$189,000
Net Benefit $351,000
Estate Tax $0
Income Tax $0
Net Benefit $1,000,000
As noted by Jack Withiam in a letter to trustees, significant lifetime charitable opportunities for IRAs have been created by the Pension Protection Act of 2006. Charitably minded individuals at least 70½ years of age may make contributions from their IRAs, if:
Checks are sent directly to Hamilton from the IRA in 2006 and 2007.
Transfers do not exceed $100,000 per year.
Gifts are outright (charitable trusts and gift annuities do not qualify).
Donors who meet the requirements may save estate taxes and their non-spousal heirs income taxes, while benefiting Hamilton. No income is recognized and no charitable deduction is allowed — a significant improvement over previous and post-2007 law.
The Act allows individuals to utilize their IRAs creatively to accomplish philanthropic objectives. Here are two examples to illustrate the benefits to alumni and friends:
Individuals who are required to take minimum withdrawals that they do not need can satisfy the distribution requirement with a transfer to Hamilton.
Individuals who usually give up to 50% of their adjusted gross income—the ceiling on allowable charitable deductions for any year — now can contribute up to $100,000 from their IRA accounts, which is not subject to this limitation. (This could enable taxpayers to make an additional contribution of $100,000 avoiding as much as $35,000 ($100,000 x 35%) in federal income tax on IRA distributions in 2006 and again in 2007.)