Retirement Assets

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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 Wellesley.

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 Wellesley. 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 Wellesley with a tax-free gift.

Option 2: Designate your remaining Qualified Retirement Plan assets as a contribution to Wellesley College.

Another attractive option is to designate Wellesley 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 Wellesley, your benefits include:

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

In addition to having the satisfaction of making a significant future gift to Wellesley, 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.

How Your Gift Helps

Your gift to Wellesley College helps us provide an excellent liberal arts education to women who will make a difference in the world by ensuring that we have the resources to:

Remain deeply committed to gender equality as foundational to societal progress well into future generations.
Value the equal dignity of every member of the community and our sustained connection to one another, to our campus, and to our mission.
Advance our mission by working together as a community—faculty, students, staff, and alumnae—guided by deeply held shared values.

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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 in 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 percent.

Withdrawals are required once you reach age 73.

You must start taking withdrawals from your qualified retirement plan once you are 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 percent 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 percent. When you add federal income tax and estate tax together, they can total 62 percent 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 percent.

Give retirement plan assets to Wellesley College 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 Wellesley?

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 Wellesley College 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 Wellesley 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 Wellesley the designated beneficiary of these retirement plan assets, not your estate. Please identify us on the form with our legal name: Wellesley College.

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 Wellesley.

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

Leah Park, 75, is a retired business executive who has accumulated $500,000 in the retirement plan that she set up through her company years ago. She takes minimum distributions from her plan in order to preserve as much tax-free growth inside the plan as she can. At this rate, she expects that her account may still be worth $500,000 when she dies.

Leah has reached the time in her life when she has begun thinking about the legacies she wants to leave behind after she is gone. She decides to leave a bequest to Wellesley College to create an endowed fund that will perpetuate generous support in her name. To accomplish her goals, she designates 40 percent of the final balance in her retirement account for Wellesley College.

Benefits

There will be no income tax or estate tax on the 40 percent of Leah's retirement plan assets that are transferred to Wellesley.
Assume the balance in Leah’s IRA when it ends is $500,000 and she donates 40 percent of that balance ($200,000) to Wellesley. If Leah were to pass the same amount to her family, that distribution would be subject to ordinary income tax. Her family would owe income tax of $74,000 (37 percent bracket) on the IRA assets, leaving only about $126,000 for their own use. If Leah’s estate is subject to estate tax the tax savings would be even greater as her estate would be entitled to an estate tax charitable deduction of $200,000.
Leah has the immediate satisfaction of knowing that she has put a gift plan in place that will keep her name alive and support Wellesley College long after she is gone.