Render Unto Caesar: Part IV

Matthew, Mark, and Luke all report that Jesus said, “Render unto Caesar what is Caesar’s, and unto God what is God’s.” Notice that the guidance does not say give generously to Caesar, nor does it say give any more than Caesar requires or mandates. If we interpret Caesar to be the US government, or more specifically the IRS, these verses seem to say pay what the law requires, but not a nickel more, because that belongs to God, not Caesar. If the tax law is written so there are options allowing us to lawfully pay less, shouldn’t we, as God’s stewards, do that? This is the fourth in a series of brief articles that each discusses a way to take advantage of the tax laws to minimize what we render unto Caesar (US government) so that more can be given to God. 

Not all assets we leave behind are equal in the eyes of tax law. Some things like IRAs and 401(k) accounts, if left to family, will be taxed at the tax rate of the one who inherited. So, let’s say Fred has $1,000,000 in assets when he dies, with $100,000 in life insurance and $50,000 in checking/savings accounts. He was in assisted living so had no house, but his estate receives $350,000 back from his deposit, and his 401(k) totaled $500,000. He chooses to leave 25% to his church, 15% to his alma mater, and the rest to his two children. (His wife Wilma pre-deceased him in this example.) One of the kids is a highly paid attorney, the other works at a small non-profit for a below-average salary in the Midwest where the cost of living is low.

Scenario 1: When the estate is settled, everything is cashed out, and checks are written to each entity. That means the church gets $250K, the college gets $150K, and the lawyer child and non-profit child each get $300K. The church and college are happy, and receive the money with no taxes. Each child has to keep track of theirs because 50% or $150,000 will be taxable, must be withdrawn over no more than 10 years, and will be taxed at their current respective tax rates (35% for the lawyer, 13% for the non-profit employee). Not counting investment growth, they will pay $52,500 and $19,500 respectively, or $72,000 in taxes of their combined total $600K inheritance.

Scenario 2: Instead, had Fred planned more tax-efficiently, he could have left his taxable 401(k) money to the church and alma mater by naming them beneficiaries. That takes care of $400K of the $500K in the 401(k) account. The insurance money could have been designated to go 100% to the lawyer child as beneficiary. The remaining $100K of the 401(k) could be left to the non-profit-employed child (as third beneficiary), along with an extra $13,000 of the savings/checking cash to pay the incurred taxes up-front. This leaves $37,000 in checking/savings to be split evenly by each beneficiary and $350K from the assisted living deposit return also named as beneficiaries. Each child receives an additional $193,500 or a total of $293,500 tax-free for the lawyer and after tax ($13K the non-profit-employed child paid on his $100K piece of the 401(k) for a total tax bill of $13K. In this case, none of it would have to go through probate because the estate planning was all done by naming beneficiaries.

If your church does not have a brokerage account and therefore cannot accept stock donations, the Foundation can assist with stock transfers. We provide this service with no fee or commission and send the full value to the church. If your church or finance committee would like to learn more about such tax-efficient giving, please contact us. We offer to meet with a team or even hold an open session with interested church members to present how these options to give more tax-efficiently can be designed. As more and more people own stocks and mutual funds or have IRAs and 401(k) type accounts, we want, as good stewards, to provide them a way to legally give more to God and less to Caesar.

(This article discusses certain aspects of the tax code, but it does not serve as official tax advice. For specific tax questions, you should always consult a qualified tax professional.)

By Brad Duty
Foundation Services Advisor

Image: Engin Akyurt, courtesy of Unsplash