Legacy Living Newsletter Planned Giving AG Financial Solutions Spring | Summer 2013
A Portfolio Plus:
Six Reasons to Consider a Roth IRA By Bob Lamb, CFP® SVP Planned Giving and Investment Solutions In an effort to save on taxes during retirement, more people are choosing Roth IRAs for their unique tax benefits. Let’s look at six reasons you might consider adding a Roth IRA to your current portfolio. 1. Grow and Withdraw Money Tax-free Because contributions to a Roth IRA are made with after-tax money, there is no tax deduction for contributions. However, interest earned on the money may be withdrawn tax-free, if conditions are met. At any time and for any reason, you may withdraw up to 100% of your contributions without taxes or penalties. Earnings distributed are tax-free after the completion of a 5-year aging period on the account, starting with the first taxable year after you begin contributions and one of the following conditions are met: •
59½ or older • Disability or death • Purchasing your first home (a $10,000 exception) 2013 Annual Contribution Limits*: • •
Under age 50 — $5,500 Age 50 or older — $6,500
* Income limitations may apply. Contact your tax advisor.
2. No Required Minimum Distributions (RMDs) Unlike Traditional IRAs and generally 401(k)s, 403(b)s, and other employersponsored retirement plans, a Roth IRA does not require you to take a minimum distribution during your lifetime. This benefits you if distributions are not neccessary for living expenses. Since you are not required to take minimum distributions, your money may continue to accumulate, leading to the third reason you might consider a Roth IRA. 3. Protect Beneficiaries from Taxes Having no required minimum distributions means you may be able to leave more to your heirs. Upon your death, RMDs are required for inherited Roth IRAs; however, those distributions generally may still be taken tax-free. Conversely, income inherited from a Traditional IRA is taxable. Those taxes may be significant if the inherited amount pushes your heirs into a higher tax bracket. 4. Increase Tax Flexibility in Retirement Adding a Roth IRA to your retirement portfolio may offer a way to decrease tax liability. This is accomplished by using distributions from both a Traditional IRA and Roth IRA. For example, if you want to stay within a certain tax bracket, you can withdraw money from a Traditional IRA up to the tax bracket’s ceiling and then use Roth IRA withdrawals for any needs above that ceiling. 5. Reduce or Avoid the Medicare Surtax The Medicare surtax is calculated according to your modified adjusted gross income (MAGI). Qualified Roth IRA withdrawals don’t count toward MAGI, whereas RMDs from a Traditional IRA do.
RMDs may increase your vulnerability to the surtax depending upon your income in retirement. 6. Contribute as Long as You Have Earned Income With a Traditional IRA, you are not allowed to contribute past age 70½, even if you have earned income. A Roth IRA, on the other hand, allows you to contribute as long as you have earned income, no matter your age. This helps maximize earnings during your lifetime. With so many good reasons to consider a Roth IRA, contact us today to see if adding a Roth IRA to your retirement portfolio would be beneficial to you.
Reaching your goals
What will be your legacy? Planned giving helps you make wise stewardship and financial decisions to manage your wealth. The marriage of proper financial and stewardship planning allows you to reach your goals for yourself, family, and ministry.
$356 million has been distributed to ministries and churches through AG Financial Solutions and affiliates.
Legacy Living
Appreciated Stocks
Maximize Your Giving Impact Recent stock market growth has led to significant appreciation of stocks, creating a prime gifting opportunity. However, not all giving methods offer the same impact. You might consider simply selling your appreciated stocks and sending a cash gift to your chosen ministry, but the taxes you may pay could make this a less-than-optimal method. There is a better approach. Instead of selling and simply writing a check to your chosen ministry, consider gifting the appreciated stocks themselves. By doing so, you may be able to increase income, avoid upfront capital gains, and potentially create a charitable deduction, all of which can increase your giving impact. 3 Tools Perfect for Appreciated Stocks: 1. Donor Advised Fund A Donor Advised Fund (DAF) is a flexible giving tool that allows you to continue to control the amount and timing of your gifts to ministry—while realizing
Gift Stock to Give More Scenario: Bill and Janice wanted to make a charitable donation to their church and favorite ministries. They made the decision to sell their appreciated stock valued at $50,000 and gift the proceeds. As they were finalizing their plans, they discovered they would owe $7,500 in capital gains from the proceeds of the sale, reducing the charitable gift to $42,500. But by placing their stocks directly into a Donor Advised Fund, they would bypass capital gains, enjoy a net tax benefit of $22,300* and act as advisors for the distribution of the $50,000 to ministry. *Net Tax Benefit = Income taxes saved based on 44.6% income tax (39.6 federal and 5% state) + capital gains paid. *This example is based on a hypothetical fact scenario and is intended for illustration purposes only. Consult your tax advisor for more information that is specific to your situation.
tax benefits now. Under this agreement, charitable contributions may be made in your name and you can make ongoing recommendations as to how funds will be distributed to ministry. A gift to a DAF can provide you with a charitable income tax deduction and help you potentially avoid capital gains taxes on appreciated assets such as stocks. 2. Gift Annuity For individuals over the age of 70, funding a Gift Annuity with stocks may provide a guaranteed income stream for you and your spouse for life. As the donor, payments and rates are calculated based on your life expectancy. It’s a great solution if you have appreciated stocks because it pays an attractive fixed payment guaranteed for life, as well as offering special tax benefits. Upon your death, ministry will be blessed with the remaining funds. 3. Charitable Remainder Trust Establishing a Charitable Remainder Trust may provide lifetime income for
Sell Stocks Directly and Gift with Cash
you and your spouse and also potentially provide income to children or other third parties for up to 20 years. It’s an excellent alternative to an outright sale of appreciated stocks. The funding of the trust creates an immediate charitable tax deduction, and stocks sold may avoid imposition of upfront capital gains. Income is payable to named parties in either fixed or annually adjusted payments. Upon termination of the trust’s term, the remaining principle is transferred to a named charity or ministry of your choice. In today’s market, appreciated stocks can provide a beneficial alternative to giving cash to ministry. It’s an alternative that can maximize your giving impact for years to come.
For more information about these planned giving tools, call 866.561.8860 to speak to one of our consultants.
Gift Stock to Donor Advised Fund
$7,500 Capital Gains (15%)
$50,000
$42,500 (85%)
Net Tax Benefit $11,455 value
$50,000 Stock Value
Net Tax Benefit $22,300 value
Final Gift Amount to Ministry
Net Tax Benefit to Donor
Spring | Summer 2013
Endowments
A Legacy that Endures Believers have a unique perspective on generosity. Much more than a passing privilege on earth, giving generously can change people’s lives for eternity. Endowments offer a unique opportunity to make this kind of impact. An Endowment is a planning vehicle that provides an ongoing, enduring source of income to the ministry of your choice. Whether for a church, a scholarship, or another institution, an Endowment is an opportunity to impact the future beyond your lifetime. This is possible because the principal remains intact indefinitely— or until sufficient assets have accumulated. The principal is invested to create the interest income that is distributed to ministry. Through an Endowment, you are able to provide continual support to your chosen ministry or charitable cause. Tax Benefits Establishing an Endowment provides immediate charitable income tax benefits and deductions, one of which is freedom
from the pressure of year-end giving decisions. Secondly, not only are contributions tax-deductible, but the investments also receive tax-sheltered earnings and may escape estate taxes and probate. In addition, you may be able to avoid capital gains tax on highlyappreciated assets. Funding You may fund an Endowment with cash, real estate, and securities, both restricted and marketable, including art, antiques, business interests, and other assets. Additional donations may be made to an Endowment at any time, both by the initial donor or the donor’s family and friends. When you create an Endowment, you can be assured that today’s generosity will ripple into eternity. For more information, contact one of our planned giving consultants. Consider an Endowment if you desire to •
Continue adding assets to the fund Provide ongoing support to a ministry or cause • Establish a scholarship •
Required Minimum Distributions
What Traditional IRA Owners Need to Know Traditional IRA owners must take a Required Minimum Distribution (RMD), after they turn 70½ years of age, regardless of retirement status. It is considered taxable income. It is the IRA owner who is ultimately responsible for calculating and taking the RMD each year. As you do this, keep the following three important rules in mind: 1. You must take your first required minimum distribution for the year in which you turn age 70½ by April 1 of the following year. 2. Each Traditional IRA you own must have an RMD calculated; however, you may choose to withdraw the total RMD amount from just one IRA. If you have multiple IRAs, you might consider rolling them over into one IRA, for easier calculation and maintenance. 3. If you fail to take the RMD by the deadline or fail to withdraw the full
amount, the amount not withdrawn may be taxed at 50%. An RMD is calculated by dividing the prior December 31 balance of the IRA by the owner's distribution period, in accordance with your beneficiary designations and age. Your IRA custodian may calculate the RMD, and you may visit www.irs.gov for more information. IRA Balance/Distribution Period = RMD
Monthly Payments You can choose to spread out an RMD amount to be paid monthly rather than in one annual lump sum. Charitable Distribution In 2013 IRA owners 70½ or older can make a Qualified Charitable Distribution (QCD) up to $100,000 without having to pay income tax on the withdrawn amount. The QCD must be made to a qualified 501(c)(3) institution such as your local church or ministry.
If you prefer not to take your RMD all at once or want a tax break, there are several distribution options available to you. AG Loan Fund Certificate Place your RMD into an AG Loan Fund Certificate and continue to earn a competitive interest rate while helping to build churches.
For more information regarding RMDs and the options available to you, contact a planned giving consultant at 866.561.8860.
3900 S. Overland Ave. Springfield, Missouri 65807 866.561.8860 agfinancial.org
Planned Giving
Legacy Living Newsletter A heart for giving. A mind for smart planning.
Yes, you can do it all. Whether you’re approaching retirement or already have a giving plan in place, it’s crucial to stay informed about changes in tax and estate laws. Plus, new options are continually arising. This biannual newsletter delivers helpful information and solutions for your giving and retirement plans. Contact our team of professionals today at 866.561.8860 to get started. To view this and previous issues of Legacy Living online, visit agfinancial.org/legacyliving