Gifts of Retirement Plans

A retirement plan may be an excellent source of funds for making a gift to Covenant House California. Many individuals today have large qualified retirement plans such as an IRA, 401(k), or Keogh plan. These assets have been growing tax-free for years. Once the owner begins to receive payments from the qualified plans, the distributions are taxed. The plans are also included in the owner's taxable estate. If an individual dies holding assets in an IRA, 401(k), or Keogh plan, these assets may potentially be subject to both income tax and estate tax, substantially reducing the total dollar amount -- sometimes by more than 50%. One way to avoid this and to make a great gift to benefit our kids is to leave all of your retirement plan assets to Covenant house California as a specific bequest in your will. Sample language to accomplish this is as follows:

"I give to Covenant House California, a California non-profit organization located at 1325 N. Western Avenue, Hollywood, CA 90027, all of the assets held in my Individual Retirement Account (IRA), 401 (k), Keogh, or in any other tax-qualified retirement plan of whatever kind and wheresoever situated."

Another way to make a gift of your retirement plan is to create a charitable remainder trust through your will. It works like this: Your IRA assets will be transferred to a charitable remainder trust. There is no tax due because the charitable remainder trust is a tax-exempt entity. The trust will provide life income to the beneficiary (for example, your child) with an eventual gift to Covenant House California. The beneficiary will pay income tax on the distributions from the trust. Your estate will receive an estate tax charitable deduction for the value of the Covenant House California's right to eventually receive the trust assets.

Either way, retirement assets are a great gift to consider. They offer an unsurpassed opportunity for a wise donor to maximize his giving at minimal net expense.