Individual Retirement Account (IRA) & Other Qualified Retirement Plans

An individual may designate Illinois Wesleyan University as the specific or contingent beneficiary of an ordinary individual retirement account. Other types of pension plans may also permit beneficiary designation. The donor retains the right to funds in the account as needed. Thus there are no federal income tax savings allowed. At the death of the donor, all or a portion of the unused funds in the account will pass to Illinois Wesleyan.

Ordinary IRA accounts and other tax deferred retirement plans are considered to be sources of Income in Respect of a Decedent (IRD).

Penalty-Free Early Withdrawals From A Traditional IRA
Who qualifies:
• First, for a Classic/Traditional IRA, anyone can make after-tax contributions of up to $3,000 per year ($3,500 if age 50+) from earned income
• Second, to contribute the full $3,000 per year ($3,500 if age 50+) on a tax-deductible basis, your 2002 adjusted gross income had to be $34,000 or less* ($54,000 or less for couples filing jointly). If your 2002 gross income was between $34,000 and $44,000 ($54,000 to $64,000 for joint filers), the amount you can contribute on a tax deductible basis gradually decreases. Above $44,000 ($64,000 for joint filers) all contributions must be in after-tax dollars

People age 50 and over can contribute $1,000 over the regular contribution limit.

Generally, you pay a 10% penalty if you withdraw funds from an IRA account before age 59.  However, early distributions from a regular IRA that you take to pay for education expenses other than room and board now avoid the 10% penalty.  This new rule can help you pay not only for your child’s education, but also your grandchild’s, your spouse’s or your own. Be aware, however, that you can’t use this strategy to cover expenses paid for by scholarships or other assistance.

Other qualified purposes that avoid the 10% penalty include first-time home purchase (up to a $10,000 withdrawal); major medical expenses; and certain long-term unemployment expenses.

Starting in 2003, gifts may be made directly to charities with a Charitable IRA Rollover.

(a) The CARE Act also includes a set of charitable giving tax incentives (such as the IRA Charitable Rollover); however the charitable giving incentives included in the CARE Act expire on December 31, 2003. Congress would have to "renew" the IRA Charitable Rollover in less than 2 years for donors to continue to have this giving opportunity.

(b) Our nation’s retirement policies are designed to encourage Americans to set aside funds during their working years for their discretionary use in their retirement years. Collectively, Americans in their retirement years continue to support charitable organizations generously, using their excess retirement income and savings as a source of funds to further their philanthropic goals. Thus, this proposal addresses the only policy issue at stake: allowing donors to make tax-free charitable gifts when such funds are not needed for retirement purposes.

(c) Because of disincentives in present tax law, few gifts of IRA funds are now being given to charity during the donor’s lifetime. Currently, withdrawals from an Individual Retirement Account are fully taxable as income to the individual even if those funds are transferred to a charity. A donor who withdraws IRA funds for transfer to a charity will be subject to tax on the entire withdrawal, offset to some degree by the charitable deduction. Some donors of IRA funds are eligible to claim a full deduction for their gifts. However, many donors are not able to use the charitable deduction to fully offset the tax on withdrawal, either because they are subject to percentage limits on the charitable deduction, or because they do not itemize on their tax return. The IRA Charitable Rollover proposal would thus provide consistent treatment for donors of IRA funds to charities, ensuring that all will be able to make tax-free charitable gifts.

(d) The IRA Charitable Rollover proposal would allow donors to transfer funds to a charity as either an outright gift or a life-income gift (e.g., a charitable gift annuity, or a charitable remainder trust).

(e) Although the original legislation would establish eligibility for donors at least 59 _ years old (the age at which IRA funds may be withdrawn without penalty), others have recommended that eligibility be set at 70 _ years (the age at which mandatory withdrawal is required). We are confident that an appropriate compromise can be reached. As an added benefit, the proposal will also simplify the tax return for many donors of IRA funds.

(f) Direct payouts from IRAs to charity would be tax free in 2003. Currently, donors include withdrawals in their incomes and get a deduction when funds are given to charity. The extra income hurts high-incomers. . . can rub out itemized deductions and personal exemptions. Bill fixes that. Of course, since payouts are tax free, IRA owners can’t deduct donations. Donors must be age 70_ to qualify, 59_ if funds go to a charitable trust. The easing would apply to payments from IRAs, not from qualified plans.

3. Required Minimum Distribution (RMD) - New Final Regulations in 2001.

(a) Overview

IRAs and qualified plans often comprise the largest single asset for many individuals

The tax law allows for income tax deferral to continue for many years after the titleholders death

Understanding the Inherited IRA is the beginning step to helping individuals maximize their distributions.

(b) Discovery

What’s Important About Money to you?

• Values

• Income Needs

• Family (how much to leave heirs)

• Charity

• Develop family financial philosophy

(c) Splitting the IRA

• After determining the key objectives in the Discovery Step, splitting the IRA will become more apparent.

IRA ‘ Spouse

IRA ‘ Charity

(d) Critical Decisions

• Choosing a beneficiary

• New distribution table

• Making sure estate liquidity exists

• Developing disclaimer plans within the beneficiary of designation

• Making sure liquidity exists

(e) Making Written Elections

Critical decisions

• Choosing a beneficiary

• Selecting a "Stretch Friendly" Custodian

• Making sure estate liquidity exists.

(f) Correcting Bad IRA Elections

• Dual recalculation where spouse predeceases owner

• Old regulations – 100 percent distribution by December 31 of following year

• New regulations – life expectancy of designated beneficiary

(g) Minimum Distributions After Death – New Regulations

• Life Expectancy available

• Review choice of beneficiary

• Death before age 70 _

- Five Year Rule – no designated beneficiary

- Life expectancy rule – designated beneficiary

(h) Minimum Distributions After Death – New Regulations

• Death after age 70 _

- Life expectancy distributions if you have a designated beneficiary

- Distributions continue over deceased’s remaining life expectancy the year after death without a designated beneficiary

• Special rules for the Roth IRA

(i) Designated Beneficiary


• Spouse

• Child

• Grandchild

• Certain trusts

(j) Designated Beneficiary

Not Acceptable