Tax-deferred retirement plans, such as IRAs and 401(k) and 403(b) accounts, are a major factor in financial and estate planning as well as gift planning due to their tax-deferred nature. Since the tax is deferred on these assets, at death they are potentially subject to both estate taxes and income taxes. If the transfer of the retirement accounts to the surviving family members is not handled properly, the retirement assets could be subject to as much as a 65% combined tax.
As a result of this tax pitfall, many individuals are using retirement plan assets to make gifts to Wheaton College. Since Wheaton College is a tax-exempt organization, the retirement plan assets avoid both estate and income taxes, thus preserving more of the asset for the support of the ministry of the College. Under current law, however, retirement plan assets should not be withdrawn during life to make a charitable contribution, since doing so will trigger the deferred income taxes.
Currently, the most efficient way to pass retirement plan assets to Wheaton College is at death by naming Wheaton College as the designated beneficiary on the retirement account documents. The beneficiary designation can be for a fixed dollar amount or a percentage of the retirement account. Lastly, you can insert instructions into your will or revocable living trust stating that charitable contributions should be made first from the retirement plan assets before any other assets are used. Fulfilling charitable bequests with retirement plan accounts avoids the potential taxes on these accounts.