Probate & Trust Law Section Conference Manual ... - Minnesota CLE

C. Income Tax On Withdrawals from Retirement Accounts
1. When P withdraws amounts from a qualified retirement account, they are,
in general, included in full in P’s gross income as ordinary income,
whether withdrawal is made during the participant’s lifetime or after
death. See IRC §§ 408(d); 403(b)(3); 401(m)(7).
2. Distributions from a qualified account after P’s death are potentially
subject to two taxes.
a. Amounts paid to a beneficiary upon P’s death are “income in
respect of a decedent” which will be included in the income of the
beneficiary. Rev. Rul. 92-47, PLR 200336020.
b. The full amount of the account is also included in the deceased
owner’s gross estate for federal and state estate tax purposes.
IRC § 2039(a).
c. An income tax deduction is available on the beneficiary’s income
tax return for any estate taxes paid because those assets were
included in the taxable estate to avoid a double tax. IRC § 691(c).
d. Charities and some charitable trusts are tax-exempt. Thus, any
amounts they receive from qualified retirement accounts will not
be taxed.
D. Lifetime Gifts to Charity
1. IRA Rollover
a. During 2013 (but not after 2013 under current law), an individual
can make up to $100,000 of “IRA Rollover” gifts.
i. The gift must come directly from the donor’s IRA.IRC
§ 408(d)(8)(B). The IRA custodian can draw a check
payable to the charitable organization and mail it to the
donor, who can then transmit it to the charity. IRS Notice
2007-2, Q&A-41. Some qualified retirement plan accounts
such as a 401(k) can be rolled over to an IRA tax-free, then
used to make an IRA Rollover gift. See IRS Publication
590.
ii.
The donee must be a public charity, not a private
foundation,IRC § 408(d)(8)(B)(i), a public charity
classified as a “supporting organization” described in Code
Section 409(a)(3), IRS Notice 2007-2, Q&A-35, or a donor
advised fund administered by the donee public charity, IRC
§408(d)(8)(B)(i).
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