This is the right gift for you if you:

• Wish to use all or part of your retirement assets to make a gift to Oberlin during your lifetime- OR-
• Wish to avoid passing high estate tax on to your spouse or children

This asset can be used to fund: An Outright Gift or Bequest.

This asset can be designated to: Area of Greatest Need; Scholarships; Professorships; Endowment; and the Conservatory.

• Benefits of Giving Retirement Assets
• Lifetime Transfers
• After-Death Transfers
• See an Example

Taking the next step:

To learn more about gifts of retirement plan assets, please contact the Gift Planning staff at gift.planning@oberlin.edu or 440-775-8599. We also encourage you to fill out the request for more information form so we may better assist you.

Benefits of Giving Retirement Assets

You may wish to consider naming Oberlin the beneficiary of your retirement plan. Most retirement plan assets are potentially taxed at multiple levels at death and, as a result, many people think of them as a way to support charitable organizations such as Oberlin in their estate plans. In fact, of all a person's estate assets, retirement plan assets are often the most costly to transfer to individuals or your estate at death, yet the least costly to transfer to charity.

The reason for tax savings resulting from a charitable transfer of retirement plan assets to Oberlin is twofold. First, if the transfer is properly structured, an estate can avoid taxation on the value of the gifted retirement plan assets through a charitable tax deduction. Secondly, since Oberlin is a tax-exempt entity, income taxes that would be triggered by the distribution of retirement plan assets to a family member or other taxable beneficiary will be avoided.

• Lifetime Transfers
• After-Death Transfers
• See an Example

Lifetime Transfers

A lifetime gift of a retirement plan to Oberlin has a limited, though sometimes appropriate, use. In order to make such a gift, you must withdraw the funds and transfer them to Oberlin. Tax ramifications of this type of lifetime gift include the following:

• The amount that your retirement plan distributes to you is fully taxable to you as ordinary income. You may then claim an offsetting itemized deduction for a charitable gift.
• The total amount of your itemized deductions will be reduced somewhat by the IRS if your taxable income in 2005 will be greater than $145,950. This means that the itemized deduction for your charitable gift will not completely offset the income you recognize from the retirement plan distribution. Itemized deductions are reduced by the lesser of:
• 3% of the excess of AGI over applicable amount or
• 80% of the itemized deductions otherwise allowable for the tax year.
• Since retirement plan distributions are taxable to the recipient, plans often require a mandatory 28% backup withholding of federal income taxes. This means that you actually receive the gross distribution less the amount withheld for income taxes.

If you do choose to make a lifetime gift of retirement plan assets, the following steps should be followed to ensure a smooth gift process and proper accounting on your income tax return:

• You can avoid “mandatory” 28% backup withholding referred to in the previous section. This can be done by completing Form W-4P and checking the box on line 1 which requests that NO income tax be withheld from the payment. This is a very important step in that you will then be entitled to the entire distribution rather than the distribution less tax withheld.

Tax laws can change rapidly and significantly in this area, and gifts from retirement assets may be easier to make and even more beneficial in the near future. Be sure to check with your tax advisors or Oberlin’s Office of Gift Planning for current information.

Tax Implications Specific to Lifetime Transfers

With the exception of the Roth IRA, retirement plan distributions made during lifetime are subject to federal ordinary income taxes as high as 35% in 2005. Additionally, many states assess a state level income tax on distributions as well.

Mandatory Withdrawals: The required beginning date for mandatory withdrawals is April 1 of the year following the year in which you reach age 70 ½, or the year in which you retire (with some exceptions), whichever is later. The table for calculating your required minimum distributions was simplified significantly in 2001 when the Treasury Department liberalized the governing regulations. Unless your spouse is more than ten years younger than you and is the sole beneficiary of the account, there is now just one table for determining your annual required withdrawal.

If you have determined that you will not need the income you are required to withdraw under mandatory distribution rules, you may want to consider gifting the withdrawals to Oberlin. You will then show the withdrawals as income and take an offsetting charitable deduction. Please keep in mind that the offsetting deduction may be somewhat reduced under the rules outlined below:

• The total amount of your itemized deductions will be reduced somewhat by the IRS if your taxable income in 2005 will be greater than $145,950 (for marrieds filing jointly). This means that the itemized deduction for your charitable gift will not completely offset the income you recognize from the annuity distribution. Itemized deductions are reduced by the lesser of:
• 3% of the excess of AGI over applicable amount or
• 80% of the itemized deductions otherwise allowable for the tax year.

After-Death Transfers

Three options for after-death gifts of retirement plan assets to Oberlin are to:

1. Name Oberlin as a primary beneficiary. This allows the retirement plan assets to be passed directly to Oberlin upon your death.
   • Married individuals who plan to name Oberlin the primary beneficiary must have a consent form signed by their spouse. Additionally, a beneficiary designation form naming Oberlin must be completed. This is a relatively simple process and both the consent and beneficiary designation forms should be available from the retirement plan administrator.
   • If you wish to name multiple primary beneficiaries, including Oberlin, it is best to actually split your retirement plan account into several accounts. This is because if a charity is named one of several beneficiaries, a lump sum payout of the account balance to all beneficiaries will be required after the death of the account holder. This can mean additional income taxes to the individuals who are also beneficiaries.
      
2. Name Oberlin as secondary beneficiary. The retirement plan assets become available to your primary beneficiary after your death and pass on to Oberlin after his or her death.
   • An advantage of this option is that you have the peace of mind in knowing that your loved one will be provided for during his or her lifetime. Additionally, if your primary beneficiary predeceases you, the account balance will pass on to the charity of your choice upon your death.
   • A disadvantage of this option is that your beneficiary may choose to change the beneficiary designation after your death and Oberlin will no longer be provided for as you intended.
      
3. Establish a shell Charitable Remainder Trust if state law allows. Name this trust as primary beneficiary of the retirement plan assets. Name your spouse or other loved one as beneficiary of the trust. During the trust beneficiary’s lifetime, the trust will pay him or her a percentage of the annual value of the trust.
• Advantages of this gift option include avoidance of income and estate taxation and the creation of an income stream to your loved one(s) during his/her lifetime(s).
• Another advantage to this option is that you will be able to retain control over who is the ultimate beneficiary of the principal in your retirement plan. This means that once the retirement plan assets are put into a charitable remainder trust, the trust's beneficiary cannot change the named charity that will eventually receive the trust corpus.
• Again, married individuals must have their spouse sign a consent form and a new beneficiary designation form must be completed.

Tax Issues Specific to After-Death Transfers

• Unless the retirement plan assets are rolled over into a surviving spouse’s IRA, distributions are taxed as income in respect of a decedent (IRD) after the death of the participant.
• Rates of taxation on the taxable portion of your estate (amounts over $1,500,000 in 2005) can reach as high as 47% (in 2005).
• Generation skipping transfer taxes are assessed at a flat rate, equal to the maximum gift and estate tax rate (47% in 2005). This assessment is on distributions exceeding $1,500,000 (2005 exemption per transferor) made to beneficiaries more than one generation below the transferor’s generation.
  

Example: After-Death Transfers
Marianne Flynn is considering whether to leave $100,000 in her IRA to her daughter or to Oberlin. She is also considering whether to leave it to Oberlin through her will or by naming Oberlin as her IRA beneficiary. The following chart illustrates the effect of each option. It assumes that Mrs. Flynn’s estate tax rate is 50 percent and her total income tax rate is 30 percent.