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The Benevolent Millionaire: Advising Wealthy Donors

At the end of the first quarter of 2024, an estimated 485,000 Americans could count themselves among the so-called “401(k) millionaires,” meaning the balance in their employer-sponsored retirement plans has reached the $1 million level. Thanks in part to stock market rallies earlier this year, this number is larger than ever before. Many of these 401(k) accounts will be rolled over into IRAs after retirement, allowing the assets to continue to grow.

As this trend continues, so does the opportunity for both clients and the community to benefit from careful and intentional charitable planning. The Athens Area Community Foundation is here to help you serve clients who are among the newly-minted “401(k) millionaires”, or even those who crossed that threshold years ago.

Leveraging Retirement Accounts for Philanthropy

With so many clients holding substantial sums in 401(k)s and IRAs, now is an important time to refresh on the benefits of utilizing these accounts to achieve clients’ philanthropic goals. A charitable bequest of any type of property can help achieve a client’s estate planning and legacy goals, but retirement accounts are particularly powerful tools. When a client names a public charity, including a donor-advised fund at the community foundation, as the beneficiary of a traditional IRA or qualified employer retirement plan, there are huge tax benefits.

• Clients can see tax benefits in any of these ways:
• Over time, as clients contribute money to a traditional IRA or employer-sponsored plan, these contributions are considered “pre-tax” by the IRS. This means no income tax is paid on the money used for contributions, subject to annual limits.
• Assets in IRAs and qualified retirement plans grow tax-free inside the plan, allowing for rapid growth without taxation on income generated by those assets before retirement distributions start.

When a client leaves a traditional IRA or qualified plan to a fund at the community foundation or another charity upon death, the charity does not pay income or estate taxes on those assets. By contrast, if children are named beneficiaries, IRA distributions to them are subject to income and potentially estate tax, which can be hefty given the tax treatment of inherited IRAs.

Smart Strategies for Charitable Giving with IRAs

If a client is deciding how to dispose of stock and an IRA in an estate plan and intends to leave one to children and the other to charity, leaving the IRA to charity and the stock to children is a strategic move. The client’s stock owned outside of an IRA gets the “step-up in basis” when the client dies, meaning the children won’t pay capital gains taxes on the pre-death appreciation of that asset when they sell it.

Additionally, clients aged 70 ½ or older can make tax-efficient gifts directly from an IRA to a qualified charity, including certain types of funds at the community foundation, up to $105,000 per year. This is known as a “Qualified Charitable Distribution.” These savvy giving techniques using IRAs allow clients to maximize their assets and fulfill their charitable goals both during their lives and through legacy gifts.

The Athens Area Community Foundation is always ready to work with you to ensure that your clients are maximizing their assets to fulfill their charitable giving goals. We look forward to the conversation and helping your clients make a lasting impact on the community!