LEAVING RETIREMENT ASSETS
Why contribute retirement assets to the University of Michigan?
Retirement accounts are often subject to income taxes and estate taxes at a combined marginal rate that can be 75 percent or higher on large taxable estates. With careful planning, many of these taxes can be reduced or even avoided while making a significant charitable gift.
How can I give my retirement plan balance to Michigan?
To arrange for the University to receive the balance of your retirement plan accounts after your lifetime, simply advise the plan administrator of your wishes and sign the appropriate beneficiary designation form. For an IRA or Keogh plan you administer yourself, you should notify the custodian in writing and keep a copy with your other important documents.
To direct your retirement plan benefits to the University of Michigan, the beneficiary designation should read: “The Regents of the University of Michigan for the use and benefit of the (Medical School, department, program, unit of the University of Michigan Health System.)”
Who should be notified if I wish to name the University of Michigan as my beneficiary?
If you are married, your surviving spouse is entitled to receive the entire amount in the following: profit-sharing plan, 401(k) plan, stock bonus plan, ESOP, money purchase pension, or any defined benefit or annuity plan except your IRAs. To transfer plan assets to U-M, your spouse must execute a written waiver. If this is not done while you are living, your spouse can execute the form after your death. If you prefer to name your spouse or others as the primary beneficiary of your retirement accounts, you can always name the University as a second beneficiary.
Can I contribute my retirement plan assets during my lifetime?
Yes. You may generally withdraw funds from retirement accounts without penalty after age 59-1/2. These withdrawals are subject to income tax. You can then make a gift of these funds to the University. The gift is eligible for a charitable contribution tax deduction that may substantially, although not completely, offset the taxes on the withdrawal. However, each situation must be analyzed individually to determine the exact financial benefits. You should consult your tax advisor on how the concepts discussed here apply to your own circumstances.
How are my retirement plan assets taxed in my estate?
Generally, the undistributed balance of a qualified retirement plan is fully includable in your estate for estate tax purposes. Since the funds in retirement accounts usually represent deferred compensation that has not been subject to income tax, directing the accounts to individual heirs exposes the funds to all deferred income taxes.
Qualified retirement plans often make a large taxable distribution after your death. The entire balance usually must be distributed within five years, and in some circumstances the distribution must be made within one year. Only a surviving spouse can roll over the inherited distribution to his or her own IRA and benefit from further income tax deferral; all other beneficiaries are immediately taxed.
When the University is designated as beneficiary, the University does not pay income tax on the retirement assets because it is a non-taxable entity. The estate also receives a charitable deduction for assets passing to the University.
For these reasons, designating the University as primary or secondary beneficiary of your qualified retirement plans can be an effective way to make a generous gift at your death while greatly reducing your exposure to taxes. You can also establish a charitable remainder trust at your death to be funded with retirement assets with the income going to your heirs for a period of years.
Should I consult with my attorney or estate planning professional?
Yes. Because this area of estate planning is relatively new and complex, you should seek guidance from an attorney or other professional who is knowledgeable about estate tax law. Staff of the Office of Medical Development will be happy to work with you and your advisors to assist you in making your planned gift.