Tax sheltered plans such as RRSPs and RRIFs offer some creative approaches to charitable giving. Withdrawals from the fund will be taxed. However, if the proceeds are donated the tax credit on the donation will offset the tax incurred on withdrawal.
On your death almost half of your plan, with a few exceptions including a spousal roll-over, will be given to the government through taxes. The alternative is to designate a charitable recipient of the proceeds of your RRSP or RRIF.
By naming a charity as beneficiary of your plan you will not only be supporting a worthy cause but the entire proceeds of the fund will be available to the charity with no net tax cost to your estate. This is because the tax credit your estate receives for the donation will offset the income tax payable on the withdrawal. Here’s how it works.
Balance in RRIF $100,000
Amount of charitable gift $100,000
Amount of plan included in taxable income $100,000
Income tax payable (assuming 48% marginal tax rate) $ 48,000
Tax credit $ 48,000
Net tax payable $ 0
One strategy could be to combine the withdrawal of funds from a tax sheltered plan with the gift of publicly-listed securities. This can be accomplished by contributing appreciated listed securities and then making a withdrawal from the RRIF equal to the value of the contributed securities. The credit from the gift of securities offsets the tax on the withdrawal from the plan.
Contribution of stock $100,000
Tax credit $ 48,000
Tax on capital gain from stock $ 0
Withdrawal from RRIF $100,000
Tax on withdrawal of RRIF $ 48,000
Net tax cost $ 0
Charles O'Neil, director of gift planning at the QEII Foundation, is available at (902) 473-7932 or at qe2-hsc.ns.ca to explore all options available. All discussions are held in strict confidence and do not require any commitment on the part of the donor.
The information on this website is provided for the general information of donors and friends of the QEII Health Sciences Centre Foundation. It is not intended to be a substitute for professional legal or financial advice. As individual situations may differ you are strongly advised to consult with your own professional legal, estate planning and financial advisors before deciding upon a course of action.