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Timothy J. Prosser, JD Vice President - Institutional Trust Consulting TIAA-CREF Trust Company, FSB

Retirement Plan Gifts – Better Now or Later?. Timothy J. Prosser, JD Vice President - Institutional Trust Consulting TIAA-CREF Trust Company, FSB. North Carolina Planned Giving Council Raleigh, North Carolina February 18, 2009. PART ONE: LIFETIME CHARITABLE GIFTS OF RETIREMENT PLAN ASSETS.

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Timothy J. Prosser, JD Vice President - Institutional Trust Consulting TIAA-CREF Trust Company, FSB

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  1. Retirement Plan Gifts – Better Now or Later? Timothy J. Prosser, JD Vice President - Institutional Trust Consulting TIAA-CREF Trust Company, FSB North Carolina Planned Giving Council Raleigh, North Carolina February 18, 2009

  2. PART ONE:LIFETIME CHARITABLE GIFTS OF RETIREMENT PLAN ASSETS

  3. BACKGROUND – TESTAMENTARY vs. LIFETIME GIFTS Dichotomy of Lifetime vs. Testamentary gifts • Testamentary Gifts traditionally seen as: • Easy • Flexible • Tax-effective (income and estate taxes) • Lifetime Gifts traditionally seen as: • Inconvenient • Irrevocable • Tax-ineffective (ordinary income and excise taxes)

  4. PLANNED GIVING 101Lifetime Gifts -- Bequests • Rule of Thumb: • Best lifetime charitable gift is appreciated stock or appreciated real estate • Fair market value IT deduction • Avoid capital gain • Best charitable bequest gift is a retirement plan • Carries out taxable income, but charity is tax-exempt • Estate tax charitable deduction • Easy gift to make (beneficiary designation) • Flexible for donor (retain control during life)

  5. Lifetime Gifts of Retirement Plan Assets? • Rule of Thumb (pt. 2): • Lifetime gifts of retirement assets are not practical since withdrawal from qualified plan or IRA produces taxable income for the donor • Large gifts exceed AGI limits • Non-itemizers recognize income, but get no deduction • Increased AGI from withdrawals reduces other deductions • No direct transfer from qualified retirement plan to charity possible under current law • Limited directed transfer possible from IRA to charity . . .

  6. EMERGENCY ECONOMIC STABILIZATION ACT extends Limited IRA Charitable Rollover thru 2009 • Extends IRA charitable rollover through 2009 (no other substantive change from PPA 2006): • Qualified charitable distributions (“QCD”) excluded from donor’s taxable income • IRA and Roth IRA accounts, only • Up to $100,000 per year per taxpayer • Account owner age 70½ or older on the date of contribution • Distribution directly from IRA account to charity

  7. EMERGENCY ECONOMIC STABILIZATION ACT extends Limited IRA Charitable Rollover thru 2009 • Qualified charitable distributions (“QCD”) excluded from donor’s taxable income: • To public charity or conduit foundation (§170(b)(1)(A)) • not to donor-advised fund • not to private foundation (non-operating) • not to supporting organization • Outright, fully charitable gift, only • no split-interest gift/no quid pro quo • donor must obtain written acknowledgement • QCD counts toward donor’s Required Minimum Distribution from IRA Account

  8. What is the Required Minimum Distribution? • Beginning the calendar year following the year in which the participant reaches 70½, must begin to withdraw required minimum distribution (RMD) • RMD = Account Balance divided by distribution period (life expectancy) associated with account holder’s age

  9. What is the Required Minimum Distribution? Uniform Life Table (excerpt) Applies to all unless sole beneficiary is a spouse who is more than 10 years younger. Treas. Regs. § 1.401(a)(9)-9 Q&A 2.

  10. What is the Required Minimum Distribution? • Example #1: • Maria has $500,000 in her IRA account on December 31, 2007. She will be 80 at the end of 2008. She must receive at least $26,738 ($500,000 divided by 18.7 year distribution period for an 80 year old) during 2008.

  11. What is the Required Minimum Distribution? • Example #2: • Maria has $300,000 in her IRA account on December 31, 2008. She will be 81 at the end of 2009. She must receive at least $16,760 ($300,000 divided by 17.9 year distribution period for an 81 year old) during 2009.

  12. Pension Bill Waives 2009 IRA RMDs • On December 23, 2008, President Bush signed the Worker, Retiree and Employer Recovery Act of 2008. (H.R. 7327). This bill includes a key provision that waives IRA, 401(k), 403(b) and some other types of required minimum distributions (RMDs) for 2009. • NCPG’s survey indicates many donors make QCDs in the amount of their Required Minimum Distribution. This legislation largely takes away that incentive.

  13. Which Donors Benefit the Most From IRA Charitable Rollover? • - Donors who do not itemize • - Donors subject to AGI limitations - Donors who want to make large gifts and don’t have other assets - Donors who don’t want / need RMD* *CAVEAT: Reduced account values = reduced RMD; 2009= RMD “Holiday”

  14. Technical Issues – IRS Guidance Notice 2007-7; 2007-5 IRB 1 (January 10, 2007): • Inherited IRAs are eligible for QCD, so long as beneficiary is age 70 ½ • QCD to satisfy outstanding pledge is not a prohibited transaction • QCD is not subject to withholding (QCD request is deemed election not to withhold) 2006 Form 1040 Instructions: • Custodian reports all IRA distributions on 1099 to donor & IRS • Donor reports “QCD” and taxable IRA distributions on Form 1040

  15. NCPG Resources on the IRA Charitable Rollover • NCPG “PPA 2006 Resource Center” (ncpg.org homepage) • Links to legislation; IRS publications; commentary; analysis • NCPG Survey of IRA Rollover Gifts to Charity (ncpg.org homepage) • As of 3-24-08 (for gifts made through 12-31-07): • 8677 distributions; total QCD value over $140M • $5,000 is most popular QCD amount • 20% say to satisfy required minimum distribution • Many accelerated future pledges • 900 charities, and most major financial services firms are represented in the survey data C37312

  16. Retirement Plan Gifts – Better Now or Later? Timothy J. Prosser, JD NC Planned Giving Council Vice Pres - Institutional Trust Consulting Raleigh, North Carolina TIAA-CREF Trust Company, FSB February 18, 2009 TIAA-CREF Trust Company, FSB provides trust services. Investment products are not insured by the FDIC; are not deposits or other obligations of TIAA-CREF Trust Company, FSB; are not guaranteed by TIAA-CREF Trust Company, FSB; and are subject to investment risks, including possible loss of principal invested. Neither TIAA-CREF nor its affiliates provide legal or tax advice. This presentation is for educational purposes only and addresses a complex topic. Because it does not address many of the nuances of estate and tax law - both federal and state - and because these laws are continually being revised, we urge you to seek the advice of your own attorney, tax advisor, or accountant regarding your particular situation.

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