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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
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Experience:  Extensive Experience with Tax, Financial & Estate Issues
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Contribution to church from 401K I am planning on giving a

Customer Question

Contribution to church from 401K
I am planning on giving a total of $150,000 from my 401K Retirement account to the building fund of my church. I am planning on giving $50,000 each year for 3 years.
Question: In what way do I give this gift to the church to pay the least amount of taxes?
Background:
I am 69 years old – birth date 5/26/1942. My annual income is $40,000 + $24,000 I withdraw from my 401K
My 401k is with a major brokerage firm (broker) in my name. The 401k consists of stocks of 62 companies both in the United States and foreign countries. My plan was to transfer $50,000 worth of stock certificates directly from my 401K account to a PNC church account. PNC would then sell the stocks and give the proceeds of the sale to the church.
The reason I wanted to make the contributions this way was to avoid capital gains tax on the contributed stocks.
However, the broker said they could not transfer stock certificates directly from my 401K account to a PNC church account. The broker said they would have to sell the stocks and give the money from the sale either to me or directly to the church.
The broker said if this was NOT a 401K account they would transfer stock certificates directly from my account to a PNC church account.
Submitted: 5 years ago.
Category: Tax
Expert:  Stephen G. replied 5 years ago.

Stephen E. Grizey :

Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything you don't understand.

Stephen E. Grizey :

As you know there's no capital gains stock within the 401-K. So there's no point in transferring the stock certificates directly as you would be taxed at the fair market value of the securities anyway; so if you liquidate the securities and transfer the cash, the affect on you & the 401-K is the same.

Stephen E. Grizey :

If you were dealing with securities outside of your 401-k plan, then it would make sense to transfer the securities directly to your church if the particular investment has a built-in unrealized capital gain. That would avoid the capital gains tax & your church would still realize the full value of the gift. (being the fair market value of the stock at the time of the gift).

Customer:

Thanks for the answer. Suppose I take the $50,000 from the 401K and donate it to the church. That would mean that my gross income would be $50,000 more. Can I take the entire $50,000 as a charitable tax deduction?

Stephen E. Grizey :

Yes. Sorry, someone was at my door.

Stephen E. Grizey :

Yes. So your new AGI would be 114,000. & your max Charitable contribution for that year (to a church) would be $57,000.

Stephen E. Grizey :

That assumes you withdraw the 50K from your 401-K and then contribute it to your church.

Stephen E. Grizey :

If you exceed the maximum contribution level (for a church 50% of AGI) then you can carryover the excess for 5 years.

Stephen E. Grizey :

The only problem with this is your taxes remain the same; (depending upon your itiemized deductions) as the 40 +24 is still taxed.

Stephen E. Grizey :

If you use the standard deduction, it actually costs you money as you would have received a deduction for part of the amount without making any contribution; so your actual taxes may increase if you don't normally itemize.

Customer:

O.K. Thanks for the info. I believe I will give withdraw $50,000 this year and give it to the church. Next year I will wait until December 1,2012 when I am 70 1/2 to give $50,000 and then give $50,000 in April of 2013.

Stephen E. Grizey :

OK, hold on a minute

Stephen E. Grizey :

Make sure that you understand that the provision in one of the "new" tax laws that allowed tax free withdrawals from IRAs if the proceeds are given to charity does not apply to 401-Ks. For participants at least 70 1/2. This is set to expire this year or next, but has already been extended in the past.

Stephen E. Grizey :

Please remember to ACCEPT; it is the only way we get credit for our work. Feedback, if you have time, and bonuses where you think they are warranted, are always most appreciated. I'll be happy to answer any follow-up questions you may have.

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