Many individuals want to include Planned Parenthood in their estate plans but are hesitant to go through the formality of a will or living trust.  In these cases, using retirement funds and financial accounts are the easiest way to “make a bequest without a will.”  Retirement funds also provide a tax-smart way to make a future gift.  Charities such as Planned Parenthood Federation of America do not pay income or inheritance taxes, in contrast to an individual heir.  

A gift of retirement plan assets could be right for you if:

  • You have an IRA or qualified retirement plan, such as a 401(k) or 403(b).
  • You do not expect to use all of your retirement plan assets during your lifetime.
  • You have other assets, such as securities and real estate, that you want to pass to heirs.
  • You would like to make a bequest gift to PPFA.

Here are two ways to make a gift of your retirement accounts after your death.   

Option 1: Designate your remaining retirement plan assets.

Such as some or all of what’s left in your IRA, 401(k), 403(b), or other qualified plan when they end. 

In addition to having the satisfaction of making a significant gift to PPFA, your benefits include:

  1. Your estate is entitled to an unlimited estate tax charitable deduction for the value of your retirement account donated to PPFA if your estate exceeds the applicable exemption.
  2. Since PPFA is tax-exempt, a gift to PPFA from your retirement account is not subject to income taxes.
  3. Preservation of non-retirement plan assets for family.

Option 2: Designate remaining retirement plan assets for a life income plan.

Alternatively, you can designate that some or all of the assets remaining when your IRA, 401(k), 403(b), or other qualified plan ends be used to fund a testamentary charitable remainder trust or testamentary charitable gift annuity arrangement that will make payments to family members or other loved ones for the rest of their lives. When the gift arrangement ends, what is left will go to PPFA.

In addition to having the satisfaction of making a significant gift to PPFA, your benefits include:

  1. The ability to set up payments for life to a loved one through a charitable trust or annuity. Retirement accounts can no longer be stretched-out for non-spouse heirs.
  2. The gift portion of your charitable trust or annuity provides an unlimited estate tax charitable deduction if your estate is subject to estate taxes.
  3. Such a plan preserves non-retirement plan assets for family.
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IRAs and qualified retirement plans
Retirement plan assets are a major source of wealth for many households. For example, you may have hundreds of thousands of dollars invested in your IRA, 401(k), 403(b), or other qualified retirement plan. These plans do not pay tax on the income they earn, or the capital gain realized within the account. This allows the assets to grow faster than if held and invested separately by you.

The primary purpose of your retirement plan is to provide you with income during your retirement, but it can also be an excellent source of funds for making charitable gifts during your life and when your plan ends.

Withdrawals are taxed as income
With the exception of the Roth IRA, the money used to fund a qualified retirement plan, such as a traditional IRA, 401(k), or 403(b), has never been taxed. Also, earnings that occur within a qualified retirement plan are not taxed. As a consequence, withdrawals from any of these plans (except for the Roth IRA) are taxed as ordinary income. Your federal income tax alone on a withdrawal from one of these plans could be as high as 37%.

Withdrawals are required once you reach 72 years old
You must start taking withdrawals from your qualified retirement plan once you reach 72 years old. The amount you must withdraw each year is a percentage of the value of your retirement plan as of the last day of the previous year. The percentage starts below 4% for someone who is taking their first “required minimum distribution” and increases with age according to a schedule published by the IRS. 

Taxes on remaining retirement assets can be very high
Your family members and other heirs will have to pay income tax on any distributions they receive from your retirement plan after you are gone. In addition, your qualified retirement plan is included in your estate, so if your estate is large enough to owe estate tax, your plan may increase the estate taxes you owe. 

Federal income tax alone can be 37%. When you add federal income tax and estate tax together, they can total 62% or more. In states that assess their own taxes on estates, the total taxes on retirement plan assets paid to heirs can be over 62%.

Consider using retirement plan assets for charitable gifts
In contrast to your retirement plan assets, your estate will not owe income tax on most of its other assets in addition to estate taxes that may be due. As a result, your estate and heirs will pay lower taxes if you pass your less heavily taxed assets to your heirs and give your retirement plan assets to charity. Paying lower taxes will mean that more assets will reach your heirs. How much more will depend on the size of your estate, where you live, the other assets you own, and the type of gift you make.

How do I pass retirement plan assets to PPFA? 
You have several good options for passing your retirement plan assets to us.

Beneficiary Designation 
The simplest and most common way to give retirement plan assets is to make Planned Parenthood Federation of America a beneficiary of your retirement plan. All you need to do is to file a revised beneficiary designation form with your retirement plan administrator to designate our organization as a beneficiary of your plan and name the percentage of your remaining assets that you want us to receive. The retirement plan assets that you designate for us will avoid all income tax and estate tax. In order for your estate to enjoy both of these tax benefits, it is especially important that you make our organization the designated beneficiary of these retirement plan assets, not your estate. Please identify us on the form with our legal name: Planned Parenthood Federation of America, Inc..

Life income plan 
Prior to the passage of the SECURE Act in 2020, inherited IRAs could stretch out their taxable distributions over the life expectancy of your heirs.  The SECURE Act requires an inherited IRA to distribute all of its assets within 10 years.  With the elimination of the stretch IRA, an attractive option for planning so that inherited retirement plan assets can pay income for life is to designate a charitable remainder trust or charitable gift annuity as the beneficiary of your retirement plan. Passing assets to us through a life income plan allows you to provide income to your loved ones after you are gone and then provide support to us. Such a plan strikes a balance between leaving all of your retirement plan assets to loved ones subject to significant taxation and leaving all of these assets to us and eliminating taxes on them altogether. Here's how a life income plan works:

  1. Your retirement plan transfers the designated portion of its final balance to a charitable remainder trust or a charitable gift annuity. 
  2. The heirs you have chosen receive payments from the plan each year, typically for life. 
  3. When the life income plan ends, its remaining principal goes to support PPFA.

Using retirement plan assets to fund a life income plan spreads out income tax and reduces estate tax on these assets, if your estate is subject to estate taxes. A typical result is to reduce total taxes on your retirement assets by more than half compared to distributing them to your heirs through your estate.

Life income plan options 
There are several life income plan options to choose from. The one that is right for you will depend on a variety of factors. Please contact us if you would like to learn more about funding a life income plan with assets from your retirement plan.

Example

Orlando Tran, 75, is a retired business executive who has accumulated $500,000 in the retirement plan that he set up through his company years ago. He takes minimum distributions from his plan in order to preserve as much tax-free growth inside the plan as he can. At this rate, he expects that his account may still be worth $500,000 when he dies.

Orlando has reached the time in his life when he has begun thinking about the legacies he wants to leave behind after he is gone. He decides to leave a bequest to Planned Parenthood Federation of America to create an endowed fund that will perpetuate generous support in his name. To accomplish his goals, he designates 40% of the final balance in his retirement account for Planned Parenthood Federation of America.

Benefits

  • There will be no income tax or estate tax on the 40% of Orlando's retirement plan assets that are transferred to PPFA.
  • Assume the balance in Orlando's IRA when it ends is $500,000 and he donates 40% of that balance ($200,000) to PPFA. If Orlando were to pass the same amount to his family, that distribution would be subject to ordinary income tax. His family would owe income tax of $74,000 (37% bracket) on the IRA assets, leaving only about $126,000 for their own use. If Orlando’s estate is subject to estate tax the tax savings would be even greater since his estate would be entitled to an estate tax charitable deduction of $200,000.  
  • Orlando has the immediate satisfaction of knowing that he has put a gift plan in place that will keep his name alive and support Planned Parenthood Federation of America long after he is gone.