Gifts of Retirement Benefits

You may consider using retirement-plan benefits to make a significant gift that will support the University of Wisconsin-Madison. And because of the estate and income-tax treatment of retirement-plan benefits, the cost of your gift to your estate and heirs is often relatively small.

Retirement-plan benefits include assets held in individual retirement accounts (IRAs) and assets held in accounts under 401(k) plans, profit-sharing plans, Keogh plans and 403(b) plans.

Income taxes on retirement-plan benefits are deferred but not avoided. That means that, as these assets are withdrawn during retirement by the account owner or the account owner’s spouse, they are subject to income tax.

In addition, retirement-plan benefits left to children, grandchildren and other beneficiaries at the death of the account owner are subject to both income tax and estate tax. This combination of income taxes and estate taxes can result in a tax hit equal to almost 64% of the retirement-plan benefits.

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Planning Pointer: Retirement-plan benefits can also be used to fund a qualified charitable remainder trust for the benefit of a spouse. If the surviving spouse is the designated beneficiary of the trust payments for his or her life, then the entire value of the trust, regardless of its size, will be deductible for estate-tax purposes. Because a qualified charitable remainder trust is a tax-exempt entity, it does not have to pay any income tax on the receipt of the retirement-plan benefits. Thus, the full value of the retirement-plan benefits will be available to provide payments to the surviving spouse.

Special Opportunity for Donors Aged 70½ and Older

A direct transfer from your IRA to the University of Wisconsin-Madison. can be excluded from your gross income, but no income-tax deduction is allowed for the transfer. To qualify for this benefit:

  • You must be 70½ or older at the time of your gift.
  • The transfer must go directly from the IRA to the University of Wisconsin-Madison.
  • Your total IRA gift(s) cannot exceed $100,000 per year.
  • Your gift must be outright.