Millions For HOPE is our District’s unique initiative to raise awareness by fellow Rotarians to provide a gift to The Rotary Foundation (TRF) as a bequest.  This article highlights a simple and cost effective option to consider.  
 
 
As we age, our life circumstances change and evolve. In our youth, we may have been motivated to purchase life insurance to ensure support for young children, or to relieve the burden of mortgage payments for a surviving spouse. In the course of a working career we generally accrue retirement savings. As we age, the passing of friends and family may provide us with an inheritance. These changing circumstances must be monitored, including our provisions for a surviving spouse and heirs.
 
One definition of the term “savings” is “deferred consumption.” We fund retirement savings, so that when wages decline along with our working hours, we have a replacement to fund our continued consumption. If we plan well, our consumption needs are met for the remainder of our years, and a residual balance is left for our heirs. As an inducement to “save” for retirement, we may participate in a type of defined contribution plan such as a 401(k), 403(b), IRA, SEP-IRA, SIMPLE IRA, Roth IRA, and the like. These plans entitle the participant to “contribute” a “defined” sum of money on an ongoing basis, with a specified favorable tax treatment, and then withdraw those funds along with the investment earnings once we reach “retirement” age. Most of these plans allow for the participant to defer paying income tax on the portion of their wages contributed, but then require the payment of income tax on the amount of funds withdrawn. Typically, a required minimum amount must be withdrawn in the year the participant reaches age 70½.   

Strategy #1 – In recent years Congress has reauthorized legislation allowing for tax-exempt withdrawals from IRAs, if the participant is at least 70½ and the withdrawal is paid directly to a qualified charity, like The Rotary Foundation. This may be a more efficient way to fund your donation to The Rotary Foundation, than to receive the distribution as taxable income, and then itemize the charitable deduction. Watch out though. In 2014 Congress didn’t reauthorize this legislation until late December, and it’s not reauthorized yet for 2015. You may not want to wait before satisfying any required minimum distribution.

Strategy #2 – It is likely if you are married, that both spouses have their own defined contribution plan. Often times one spouse is a higher wage earner and may have a higher retirement plan balance. When one spouse survives the other, the lower wage-earning spouse may have a greater need for those assets to fund personal spending in retirement, but what if the higher wage earner is the surviving spouse? Consideration might be given to naming The Rotary Foundation in whole or part beneficiary of the lower wage earner’s defined contribution plan.

Strategy #3 – In cases where a couple chooses to retain all possible retirement plan assets for the benefit of a surviving spouse, it might be appropriate to name The Rotary Foundation as “contingent” beneficiary by each spouse. In this case, the surviving spouse receives the retirement assets of the deceased spouse in an “inherited IRA”. The surviving spouse may then name The Rotary Foundation as a primary beneficiary of that inherited IRA.  

Strategy #4 – In some cases a parent, or grandparent may wish to provide for children prior to providing a bequest to The Rotary Foundation. In cases such as this, a specific dollar amount, or percentage bequest may be named for the children as a first bequest. If sufficient assets exist, a second allocation, or contingent bequest may be named for The Rotary Foundation. This may be followed by a third and final allocation of residual assets to the children.
 
These are a few strategies to provide for The Rotary Foundation with a portion of retirement savings. As a basic rule, if The Rotary Foundation is intended to be a beneficiary, it should be named directly as beneficiary of a defined contribution plan, instead of your personal estate receiving a liquidating distribution from the plan (triggering an income tax liability) and then naming the charitable bequest from there. Also, be aware that custodians of retirement plan assets may require spousal consent when a change of beneficiaries is ordered. As always consultation with professional advisers that understand your circumstances is always advisable.

Questions? Contact Michael Whitehurst (Mike@mccuen.us), or click on “Make a Bequest.”