Retirement Assets

Your qualified retirement plan is a tax-smart way to support the lifesaving programs and services of the the American Red Cross using your qualified retirement plan. An IRA charitable rollover (also called the Qualified Charitable Distribution or QCD) is a great way to make a tax-free gift to the American Red Cross and satisfy your required minimum distribution. See detailed instructions for making your QCD gift.

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 want to provide payments to loved ones after you are gone.
  • You would like to make a bequest gift to the Red Cross.

Option 1: Make a tax- free Qualified Charitable Distribution (QCD) from an IRA.

You can make a tax-free gift from your traditional IRA. Such a gift is known as a Qualified Charitable Distribution or QCD.  (Other qualified retirement plans such as 401(k)s and 403(b)s are not eligible, but you can rollover funds from these plans to an IRA and then make a QCD gift). You must be at least 70 ½ years old to take advantage of this opportunity. Your QCD must go directly from your IRA administrator to the Red Cross. The total of all of your QCD gifts for 2024 cannot exceed $105,000 per person however, your spouse with a separate IRA can also make a QCD of up to $105,000 in 2024 if they otherwise qualify.

The benefits of a QCD gift include:

1. If you don’t itemize and are not yet required to take your RMD, a QCD offers all of the benefits of an itemized income tax charitable deduction.
2. If you are age 73 and must take your RMD, a QCD can satisfy your RMD without increasing your income taxes.
3. Your support the important work of the Red Cross with a tax-free gift.

Option 2: Designate remaining retirement plan assets for the American Red Cross.

Another attractive option is to designate the the Red Cross as the recipient of some or all of what remains in your IRA, 401(k), 403(b), or other qualified plan when they end. 

In addition to having the satisfaction of helping the the Red Cross meet the needs of those facing a crisis, your benefits include:

1. The QCD is an income tax smart gift. The SECURE Act enacted in 2020 prohibits stretching out distributions from an inherited IRA over the life of heirs.
2. Your estate is entitled to an unlimited estate tax charitable deduction for the funds from your IRA donated to the the Red Cross if your estate exceeds the applicable exemption. 
3. Since the Red Cross is tax-exempt, a gift to the Red Cross from your IRA is not subject to income taxes.
4. Preservation of tax favored non-retirement plan assets for family.

Option 3: Designate remaining retirement plan assets for a life income plan.

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

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

1. A charitable trust or annuity can provide lifetime income for life since that is no longer possible after adoption of the SECURE Act. That law prohibits stretching out distributions from an inherited IRA over the life of 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.

How Your Gift Helps

Your generosity makes it possible for the American Red Cross to provide compassionate care to those in need. Our network of generous donors share a mission of preventing and relieving suffering through service areas such as:

disaster relief

 

 military families

 

 blood services

 
Disaster Relief, responding to approximately 60,000 disasters in the U.S. every year; Supporting America’s Military Families, including wounded warriors and veterans; Lifesaving Blood, the largest single supplier of blood and blood products in the U.S.

 

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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. 

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. Consequently, 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 24%.

Withdrawals are required once you reach 73 years old
You must start taking withdrawals from your qualified retirement plan once you reach 73 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 24%. When you add federal income tax and estate tax together, they can total 54% or more. In states that assess their own taxes on estates, the total taxes on retirement plan assets paid to heirs can be over 54%.

Give retirement plan assets to the American Red Cross and save taxes
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 make your gifts to charity through 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 the Red Cross? 
You have several good options for passing your retirement plan assets to us. Here are several examples:

Beneficiary Designation 
The simplest and most common way to give retirement plan assets is to make our organization 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: American National Red Cross and our Tax EIN 53-0196605.

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 not including spouses and certain other exceptions. 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 the Red Cross 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. You choose the heirs to receive payments from the plan each year, typically for life. 
3. When the life income plan ends, its remaining principal goes to support the Red Cross.

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

Earl Walker, 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.

Earl 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 the American Red Cross to provide support where it is needed most. To accomplish his goals, he designates 40% of the final balance in his retirement account for the American Red Cross.

Benefits

  • There will be no income tax or estate tax on the 40% of Earl's retirement plan assets that are transferred to the Red Cross.
  • Assume the balance in Earl's IRA when it ends is $500,000 and he donates 40% of that balance ($200,000) to the Red Cross. If Earl 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 $48,000 (24% bracket) on the IRA assets as they are withdrawn, leaving only about $152,000 for their own use. If Earl’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.  
  • Earl has the immediate satisfaction of knowing that he has put a gift plan in place that will keep benefit his family and support the American Red Cross in the future.

 

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