Published: June 18, 2009 04:57 pm      

Maxed out your retirement plan? Need more retirement income?

Did you know there is a charitable solution to the dilemma of maxing out your retirement plan? The answer lies in considering the benefits of a deferred gift annuity with the Hendricks County Community Foundation.

Many younger adults max out their IRA or retirement plan contributions each year. They would like to set aside more for their retirement years but the restrictions make that difficult. Their incomes are growing and they need any tax relief they can get.

Here is an example. A young donor named Robert is a supporter of the Community Foundation. He’s 50 years old and annually makes the maximum contribution to his IRA ($6,000 in 2009). He would like to begin creating a legacy for his family now, but feels he can’t do so without jeopardizing his goal to save enough for retirement.

The solution is for Robert to use a deferred gift annuity at HCCF. This year, Robert transfers $100,000 to us to set up a deferred gift annuity. Instead of receiving current income from the annuity, he decides to defer payments until he retires at age 65 (when he expects to be in a lower tax bracket). Much to his delight, the deferred gift annuity payments will be higher than if he elected to receive immediate payments. Moreover, deferring the payments creates a higher income tax charitable deduction compared to that of a regular gift annuity — he receives more tax relief today during his higher income years. Finally, Robert knows that the HCCF will benefit from his increased generosity after he has enjoyed all of the benefits to which he is entitled.

Robert is able to accomplish a great deal with this unique gift plan. A charitable deduction of about $29,934 will save Robert $10,477 in federal income taxes this year in his 35 percent tax bracket. When his payments begin at age 65, Robert will receive around $9,300 per year and $3,450 of each payment will be income tax-free until Robert reaches his life expectancy (and fully taxable thereafter). The annual payments will supplement his other sources of income and will help ensure a more secure retirement.

Equally important, the remainder portion of the deferred gift annuity at Robert’s death will be used to create a charitable fund in his family’s name to carry on his family’s legacy forever.

Another flexible feature of the deferred gift annuity is that you can name someone other than yourself to receive the annuity payments. Maybe there is a family member or loved one to whom you would like to provide some extra retirement income. A deferred gift annuity is an easy way to accomplish this and also leave your charitable legacy.

Hopefully this article has intrigued you enough to consider deferred gift annuities as part of your retirement portfolio. After considering the benefits of no contribution limits, flexibility, favorable tax incentives, and your personal satisfaction of creating your family’s legacy, call me today to discuss how the HCCF can help you resolve the dilemma of maxing out on your retirement contributions.

— Janet Haley is executive director of the Hendricks County Community Foundation. She may be reached by e-mailing to janet@hendrickscountycf.org or by calling 718-1200.