Retirement Assets

A gift of retirement plan assets could be right for you if:

You have an IRA or other Qualified Retirement Plan such as a 401(k) or 403(b).
You do not expect to need 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 income or payments to loved ones after you are gone.
You would like to make a charitable bequest to W&L.

Option 1: Make a tax-free gift now with a Qualified Charitable Distribution (an “IRA Charitable Rollover”).

You can make a tax-free gift with a Qualified Charitable Distribution (QCD) from your IRA. (Other Qualified Retirement Plans such as 401(k)s and 403(b)s are not eligible). You must be at least 70½ years old to take advantage of this opportunity. Your QCD must go directly from your IRA administrator to W&L. 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:

If you don’t itemize your income tax deductions, a QCD provides the tax benefits of an itemized income tax charitable deduction.
If you are age 73 and must take a Required Minimum Distribution (RMD), your QCD gift can satisfy your RMD without increasing your income taxes.
Your gift provides immediate support for the important work of W&L with a tax-free gift.

Option 2: Designate your remaining Qualified Retirement Plan assets as a contribution to Washington and Lee University.

Another attractive option is to designate W&L as the recipient of some or all of what’s left in your IRA, 401(k), 403(b), or other Qualified Retirement Plan at the end of your lifetime.

In addition to having the satisfaction of making a significant future gift to W&L, your benefits include:

Your estate is entitled to an unlimited estate tax charitable deduction for the value of your Qualified Retirement Plan donated to W&L.
Since W&L is tax-exempt, there will be no income taxes paid on the distribution to W&L.
A tax-smart estate planning strategy is to contribute taxable Qualified Retirement Plan assets to W&L and preserve non-retirement plan assets for your heirs.

Note: Directing your Qualified Retirement Plan to charitable and noncharitable beneficiaries can accelerate the income tax. Always consult with your advisors before naming the beneficiaries of your Qualified Retirement Plan.

Option 3: Designate your remaining Qualified Retirement Plan assets for a life income plan.

Alternatively, you can designate that at the end of your lifetime some or all of the assets remaining in your IRA, 401(k), 403(b), or other Qualified Retirement Plan be used to fund a charitable remainder trust or charitable gift annuity that will make payments to family members or other loved ones for the rest of their lives. When the life income gift arrangement ends, what is left will go to W&L.

In addition to having the satisfaction of making a significant future gift to W&L, your benefits include:

A charitable remainder trust or charitable annuity can provide a lifetime of income or payments to your chosen beneficiary.
The gift portion of your charitable remainder trust or charitable gift annuity provides an estate tax charitable deduction if your estate is subject to estate taxes.
A tax-smart estate planning strategy is to contribute Qualified Retirement Plan assets for a life income gift and preserve non-retirement plan assets for your heirs.

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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. This allows the assets to grow faster than if held and invested these qualified plans.

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. As a consequence, 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 37%.

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 37%. When you add federal income tax and estate tax together, they can total 62% or more. In states that assess their own taxes on estates, the total taxes on retirement plan assets paid to heirs can be over 62%.

Give retirement plan assets to Washington and Lee University 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 give 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 W&L?
You have several good options for passing your retirement plan assets to us.

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: Washington and Lee University.

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. 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 us 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:

Your retirement plan transfers the designated portion of its final balance to a charitable remainder trust or a charitable gift annuity.
The heirs you have chosen receive payments from the plan each year, typically for life.
When the life income plan ends, its remaining principal goes to support W&L.

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

Marcos Hill, 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.

Marcos 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 Washington and Lee University to create an endowed fund that will perpetuate generous support in his name. To accomplish his goals, he designates 40% of the final balance in his retirement account for Washington and Lee University.

Benefits

There will be no income tax or estate tax on the 40% of Marcos's retirement plan assets that are transferred to W&L.
Assume the balance in Marcos's IRA when it ends is $500,000 and he donates 40% of that balance ($200,000) to W&L. If Marcos 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 $74,000 (37% bracket) on the IRA assets, leaving only about $126,000 for their own use. If Marcos’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.
Marcos has the immediate satisfaction of knowing that he has put a gift plan in place that will keep his name alive and support Washington and Lee University long after he is gone.

How Your Gift Helps

Your gifts to Washington and Lee help to provide a liberal arts education that develops students' capacity to think freely, critically, and humanely and to conduct themselves with honor, integrity, and civility. It will provide Washington and Lee with the resources to…


prepare graduates for life-long learning;	foster responsible leadership and service to others;	be engaged in citizenship for a global and diverse society.