Welcome! If you’d like to learn about marketing for IRA rollovers, you’ve come to the right place. Whether you’re a Director of Development at a small shop, or a Gift Officer at a huge nonprofit, knowing how to market charitable IRA rollovers is an important skill. This page is filled with a lot of useful information. Enjoy, share with colleagues, and let us know your thoughts.
An IRA (Individual Retirement Account), gives people a way to build tax-deferred savings for retirement since pensions are less likely to be offered and many do not want to depend solely on Social Security. With the passage of the Setting Every Community Up for Retirement Enhancement Act (SECURE) on December 20th, 2019, anyone earning income (regardless of age) can open and invest in a traditional IRA (the most popular IRA).
Individuals can usually deduct their IRA contributions from their gross income for tax purposes, a big break that lowers their adjusted gross income so they pay tax on lower income amounts. Plus the earnings from the growth of their contributions are usually tax deferred until the money is withdrawn at retirement. Although, high earners might not be able to take advantage of these benefits.
Withdrawals cannot occur without tax consequences prior to age 59 ½. Trying to sneak funds out, with few exceptions, will result in the amounts getting taxed as ordinary income plus, in most cases, an IRS penalty of 10%.
NOTE: Generally, money can be withdrawn from a traditional IRA penalty-free before age 59½ to buy a first home, pay for higher education or extraordinary medical costs, or because of disability or death. Also penalty-free loans from an IRA are allowed, but the money must be replaced within 60 days or taxes will be levied in addition to the 10% IRS penalty.
In 2018 Reuters reported that household net worth in the U.S. surpassed $100 trillion with $8.4 trillion saved in retirement assets including:
And, continued growth is expected.
Most supporters of nonprofits are likely to have IRAs and the funds in those IRAs are almost guaranteed to grow in value. Here’s why:
According to the Investment Company Institute, in 2017, more than one-third of US households owned individual retirement accounts (IRAs) and more than 80% of those IRA-owning households also had employer-sponsored retirement plan accumulations or had defined benefit plan coverage (pensions). Plus, many of the 80% (about 26% of U.S. households) with employer-sponsored retirement plans will likely ‘roll’ those funds into IRAs because they won’t want to leave the funds behind with their former employers. So they’ll consolidate their assets in an IRA to ensure they continue to benefit from tax deferment.
IRA owners (households) tend to be savers and they seem to mirror hi-capacity donor profiles because they:
Older people tend to make up most of IRA withdrawals. In 2016, 80% of households owning traditional IRAs taking withdrawals were headed by an individual aged 70 or older. Seventy-one percent of those calculated their withdrawal amounts based on the required minimum distribution (the minimum amount they must withdraw each year in accordance with the IRS’ rules governing distributions). The required minimum distribution (RMD) is the account balance (as of the end of the immediately preceding calendar year) divided by a distribution period from the IRS’ Uniform Lifetime Table (see below). A separate table is used if the sole beneficiary is the owner’s spouse who is ten or more years younger than the owner.
Many believe that affluent individuals tend to take one, lump-sum distribution each year with the vast majority of these occurring in the 4th quarter (October, November, or December). If this is true it suggests that these individuals don’t need the funds to support themselves. Additionally, it suggests that these people are likely to consider making a qualified charitable distribution (QCD) to avoid paying income tax on the RMD (since it will increase their adjusted gross income while a QCD transferred directly to a charity will reduce their adjusted gross income). They also might appreciate the fact that a QCD will likely simplify their tax returns.
Once a supporter recognizes the benefits of making QCDs, they are likely to continue them each year. Suppose, for instance, a supporter has been writing a check or donating online to an organization every year in the fourth quarter. Once they realize they can make a QCD, there’s a good chance they’ll switch to that method each year going forward, possibly resulting in much larger end-of-year gifts. Plus as the IRS’ calculations increase the amounts of their RMDs each year, the amount of their QCDs are likely to increase as well, ensuring that everyone wins (except Uncle Sam).
Since the U.S. Congress made the IRA Charitable Rollover permanent, individuals who are age 72 or older can donate up to $100,000 from their IRA each year (plus $100,000 from their spouse’s) as a qualified charitable distribution without having to recognize it as income.
Donating more than $100,000 each of the IRA will likely cause the additional amount to be treated as ordinary income resulting in income tax to the donor. Remember, when the funds were put into the account a tax deduction was available because the funds were originally meant for retirement, not charity. Changing this paradigm by giving more than the allowable amount to charity will likely trigger a reversal in the tax benefit that was originally taken.
Having said that, the amount of the income tax could be offset by taking a deduction that might be allowed for giving the money to charity. But there could be limitations to this and any donor will probably need a calculator and/or a good CPA to determine the real benefits or penalties. Still, some might elect to give $100,000 each per year from their IRA(s). Finding those supporters could result in impactful gifts to support a cause.
Instead of giving the IRA to a charity during their lifetime, a supporter could decide to designate the charity as a beneficiary of their retirement account. That way the donor and their estate will not owe income taxes on the amount during their lifetime yet the amount will be included in their taxable estate. This usually only matters if they have a humongous estate (worth $11.2 million or more).
When marketing for IRA rollovers it’s important to recognize that donors want to support the causes they believe in because giving makes them feel good. But usually there is too much ‘friction’ involved in giving. Plus, in the case of an IRA, friction could arise because many don’t know that they can give their IRA money to charity, nor do they understand how to do it and the benefits they’d enjoy.
With an IRA rollover gift they could avoid paying hefty penalties they might encounter if they forget to take the RMD entirely in any given year. Plus, by giving IRA money away as a qualified charitable distribution (QCD), they could avoid paying tax on the required minimum distribution (RMD) or the increase it will add to their taxable adjusted gross income . This is a great benefit in addition to the fact that making a QCD gift could make their tax filing easier!
Additionally, since so many might feel they don’t need the funds to support their living expenses (as much as they might have originally thought), giving a QCD might make them happier. And, they might even end up wanting to do it each year (usually in the fourth quarter) so they can increase their yearly gift compared to a low-dollar end-of-year donation they might habitually make. In fact, MarketSmart we have been hearing from customers that many older monthly donors are canceling their monthly giving ‘subscriptions’ and replacing them with much larger QCD gifts, thereby upgrading low-dollar donors to become major donors and/or legacy gift prospects (potentially by beneficiary designation at the very least).
Of course, if they decide to leave the IRA to a charity as a beneficiary in their estate plan, that might make them feel even more satisfied while also potentially entitling them to benefits afforded only to legacy society members by an organization or institution.
Clearly there are a lot of benefits to QCDs. But, too often, supporters don’t make QCDs or change their beneficiary designations simply because of the friction involved including:
It’s really pretty easy! Getting their ‘custodian’ (the institution responsible for safeguarding their financial assets) to transfer the funds and changing their beneficiary designation is not hard at all. Although, it does require some time and effort. Friction!
Too often marketers/fundraisers dive into tactics prematurely resulting in lost time and money. They tend to get busy focusing their efforts on tactics without clear objectives. If only they would sit down and determine their goals first they’d save themselves and their organizations a lot of aggravation and cash. When marketing for IRA rollovers, we need to take our time and be pragmatic.
When donors make their decisions on their own, that’s great because it saves the organization the cost of facilitation (which involves fundraising staff time and effort). But in that scenario, the gift officers don’t get opportunities to build relationships that could result in more giving. So, although ‘touchless’ giving is great, highly qualified leads might be better. Plus, the higher the quality of the leads, the more easily and faster they will close— thereby optimizing staff costs.
Keep in mind that it is harder to generate highly qualified leads than leads with lower levels of interest or to simply ‘build awareness’. Thus, if the goal is to generate highly qualified leads, fundraisers should prepare themselves and others for much lower response rates.
If, on the other hand, a more measured approach to marketing is taken, it might be wise to generate more leads by widening the net (usually with offers and creative that lower the barrier to entry into the consideration process). Doing so will also build awareness as the approach will appeal to more people and result in more leads overall (hi and low quality). Those leads can then be cultivated over time to help supporters move themselves through the consideration process on their own.
Therefore, when thinking about setting goals for marketing rollover IRAs, consider the following:
First the supporter might recognize that they have a need when they realize that they don’t need the money they saved for retirement using an IRA. Plus they might feel they have a need for a tax deduction and/or for a way to give (or give more) to support your cause.
Next, as they become more interested, they might try to educate themselves and evaluate their options so they can determine the value they could receive.
Then, as their desire builds, they might begin to feel pressure (especially toward the end of the year) and could feel that they need help resolving their concerns before making the final decision and signing on the dotted line. It is especially important that an organization help reduce friction at this stage of the process to ensure that the rollover occurs.
After they take action, your donor will likely evaluate the organization’s implementation (stewardship) process. If your stewardship is poor, they might decide to give their QCD to another organization the following year.
And, finally, they are likely to experience changes over time that might lead to a new stage of need recognition. Hopefully they’ll feel satisfied with how you supported them during the resolution of concerns and implementation stages. If so, they may form a habit of making a QCD gift year after year. And, they may even consider leaving all or a portion of their IRA to support your mission as a bequest.
Too often marketers/fundraisers spend too much time deliberating about the creative aspects of their direct marketing even though it is the least important component of any outreach approach. In fact, we have found that an ugly design with the right offer sent to the right audience (list) tends to beat a beautiful, witty, creative package sent to the wrong list with a weak offer every time. In other words, if your list is bad and your offer doesn’t resonate and provide value, it won’t matter how creatively you designed your outreach and how good the timing is. That’s why MarketSmart recommends you only spend about 5 percent of your time and money on the creative component of your direct marketing efforts.
First and foremost, what makes marketing work is a qualified list. It’s the most essential component for success. Therefore, we recommend you spend about 60 percent of your effort making sure you have a great list.
If you are subscribed to MarketSmart’s System, we suggest you sort your donor survey responses to identify supporters who stated that they are interested in a making a QCD gift, that they are considering making a QCD gift, or that they have already made a QCD gift in the past to support your cause.
After that list is pulled, a quality offer will be needed to help encourage supporters to lean in and qualify themselves. We recommend you spend at least 20 percent of your time and energy developing offers that draw people in to engage. The best offers will be highly relevant and provide tremendous value in the form of good feelings, convenience and benefits.
When pulling your list for a rollover IRA marketing effort, consider the following:
Most organizations that have received rollover IRA gifts in the past have pretty happy customers/donors, making that group the best for marketing outreach. Many will have benefited (enjoyed value) from the last transaction and will have had a satisfactory giving experience. Some might even have made those gifts anonymously but later informed you of their previous decisions only after taking a donor survey. No matter how you learned about their past gifts, we recommend you focus your marketing dollars and efforts primarily on previous IRA rollover donors because:
NOTE: Absent any verbatims or digital body language, age is really the next best data point to use when pulling a list.
You can’t just ask supporters to give from their IRAs. That would be like asking them to get married on the first date. And besides, giving money away is not easy for most. Plus, rolling over an IRA or making it part of an estate plan is not an impulse decision. Rather, it is a highly-considered concept and potential QCD donors will seek to educate themselves in a low-pressure, safe and convenient environment as they ask themselves:
To help your supporters make determinations about QCD gifts, it is best to provide opaque offers. That way they only see what is right in front of them and they don’t have to worry about making a big leap. Instead, they get a chance to lean-in and explore the concept safely, without worrying about making a final decision right away.
Opaque offers make certain that we don’t push too hard too fast. Instead, we help supporters educate themselves safely and conveniently as their engagements with those offers help fundraisers qualify and prioritize them for outreach (so only the most interested supporters get contacted). In other words, opaque offers deliver value in line with your donors’ consideration processes. They are like sugar that helps medicine go down more easily at just the right time.
If you’re doing it right, an opaque offer will serve to:
Remember, your offers should seek to draw engagement among people who:
MarketSmart recommends offering rollover IRA donor prospects an online microsite so they can educate themselves no matter where they reside along the consideration continuum. That microsite should be designed to:
The microsite might include the following:
Of course some of these items might be ‘gated’ (requiring an email address for download or access) so you generate leads. While others should be easily accessible, with no ‘friction’ whatsoever.
IMPORTANT POINTS: Help people do it on their own by including the following points.
Remember, the QCD rollover IRA charitable giving option will appeal mostly to affluent people who feel they don’t need the money they saved. Many will not be focused on the fact that the money is lingering in their account. After all, this audience will be busy, retired and enjoying their lives. Many will delay taking a distribution until the last quarter of the year because of procrastination or because they want the money to grow tax free. But, as the end of the year approaches annually, they’ll remember that they must take their minimum required distribution or they will face a penalty.
It’s annoying to them, for sure! Plus the penalty could amount to a tremendous loss since it’s 50% of the minimum distribution amount they were supposed to take out. And on top of that, they’ll still have to pay the income tax owed on the required distribution amount. So, since their affluence will likely put them in a high tax bracket, they could pay well over 75% of the required distribution amount to the IRS. Ouch!
So, let’s say someone has $500,000 in their IRA or spread among several IRA accounts. At the age of 72 they’ll have to take out over $18,000 and pay income tax on it. If they don’t do that, the penalty will be around 50% of the RMD or approximately $9,000. Plus they’ll still have to pay the income tax in addition to the penalty. And, there’s no statute of limitations on this. In other words, if the IRS doesn’t catch it one year but they catch it later on, they’ll be forced to pay the penalty no matter how much time has passed.
The penalty is a stinger for sure and, believe it or not, a lot of seniors fail to take their RMD’s. According to Kiplinger, a report by the Treasury’s Inspector General estimated that more than 250,000 people failed to take approximately $348 million in 2006 and 2007. That’s old data so the figures are surely higher today.
Most people simply forget to do it while others get confused because they have so many IRA accounts in several different places, with various banks. Plus they have to do their own calculations to determine the appropriate distribution amount and, as retirees get older, that chore only becomes more daunting.
Because of all the reasons mentioned above, clearly it will be important to remind supporters about this giving option and what could happen if they don’t take their RMD. Therefore we recommend a 5-touch-initiative starting each year in late springtime.
Although creative is less important, the components involved in developing your creative must still be understood. They might include:
The first step in the development of your creative is always to refer to your goals. If you aim to only generate highly qualified leads that are likely to take action soon and want to work with a gift officer on a donation, you will want to develop creative that focuses on asking people to contact you. But, we do not recommend that strategy because it will likely result in very few leads. Instead, we recommend setting a goal of generating both high- and low-quality leads while also helping donors take action on their own.
Conversions are points at which donor prospects take action to move themselves forward in the decision-making process. Inline with the goal of generating highly qualified leads that are likely to take action soon, we recommend encouraging donor prospects to convert by:
It is important to recognize that supporters will feel more pressure when asked to convert using some of these options. They know that they signal to you and your staff that they are interested in taking action soon, making them highly qualified. If they are not ready for that level of engagement, they may decide to take no action at all instead. That is precisely why marketing efforts designed to generate more highly qualified leads result in fewer conversions. It is also why we recommend offering other options that involve less pressure and align with where most supporters reside in the consideration process, since it is unlikely that most will be ready to take action precisely when they receive your outreach.
Perhaps a better way to say all this is as follows:
QCDs always deliver tax benefits while ‘regular’ charitable donations might not. The Qualified Charitable Distribution (QCD) amount you decide to give will count toward your Required Minimum Distribution (RMD). In other words, you can arrange to donate all or part of your RMD (up to $100,000 per individual). Keep in mind that you would otherwise be forced to pay tax on the RMD amount. Plus, the QCD amount can be excluded from your adjusted gross income (AGI) each year while other charitable donations might not. So a QCD is a good way to reduce your tax burden annually.
Let’s suppose you are married, both you and your spouse are over 72 years old, you fall into the 24% tax bracket, and together you have an annual required minimum distribution (RMD) of $24,000. Instead of taking the RMD and paying tax on the income, as a couple you can instead direct $10,000 of the $24,000 to charity as a QCD. By doing so, you will reduce your taxable income by $10,000 and you’ll still get to claim the same $26,550 standard deduction allowed by the IRS. In this case, by using this strategy, you will have saved $2,400 in federal taxes alone ($10,000 X 24% tax bracket = $2,400) — and potentially more in state tax savings.
Take The Quiz: See if a QCD is right for you
Yes / No Are you over 72 years old?
Yes / No Do you have a spouse?
Yes / No Is your spouse over 72 years old?
Yes / No Will you be itemizing deductions this year
Yes / No Do you feel that you do not need the money you saved as much as you once thought you would and, therefore, would be financially secure after giving some of it away?
[After they hit ‘SUBMIT’ an answer pops up letting them know if they should consider doing it or not.]
Since nonprofits usually need to market rollover IRAs with a hyper-targeted approach, direct mail and email would seem to be the best options. But, if your budget is lean, email and other digital channels might be the most cost-effective options for you. Although, it is important to remember that the value of a rollover IRA gift and/or beneficiary designation bequests is likely to be exponentially greater than other any other donations you receive. Therefore, you might consider investing more in marketing rollover IRA gifts because your return on that investment could be 10:1 or even 100:1.
Also, it is important to realize that email is not how most people are accustomed to seeing financial marketing. Therefore, you must prepare yourself, your team, and your leadership for somewhat low email open rates, click-thru rates, and conversion rates. Educate them about the fact that people make financial decisions slowly and infrequently. These are not impulse decisions. Rather, they require inordinate amounts of consideration and evaluation.
Plus, engagement and response rates are vanity metrics. It might make you or your leadership feel good to see lots of clicks. But it is essential that you stay focused on the potential for huge returns on your marketing investment and the goals you set when you began the initiative.
Also, you might want to consider digital advertising aimed at older people who ‘like’ your Facebook page or digital retargeting ads. Digital channels could be a great way to support your direct mail and email efforts.
And, lastly, try placing advertisements in your organization’s publications to support your direct mail and email efforts too.
Here is a list of channels we suggest you consider:
Since most donor prospects will not take action right away by making a QCD gift on the spot, the communications should focus primarily on enlightening and reminding them. The best way to do that is with education-oriented content that helps them make sense of the complex and sometimes confusing topic.
People generally appreciate assistance in the form of information and illustrations. Think of your marketing as a gentle guide or counselor, helping facilitate the education process as your donor prospects moves themselves through the consideration process. That will engender trust.
If you have special initiatives, projects or programs that you know your donor prospects might want to support (as a result of their verbatims or digital body language found in your dashboard), consider mentioning them. For instance, you might want to highlight specific naming opportunities, building needs, etc.
Do not over-explain and confuse your donor prospects with jargon and legalese. Make sure your focus is on helping them, not talking down to them. In fact, make yourself the resource for assistance if they want to engage 1-to-1. Encourage them to call or email you, especially as the yearly deadline approaches.
Conversion optimization is all about reducing friction for your donor prospects. Once we have helped a donor prospect become interested, it is essential that we make it easy for them to take action. The best way to achieve this result is to examine the steps required for conversion and then remove friction at every point.
It goes without saying that landing pages, emails, and direct mailers should be clear and absent clutter. Eliminate confusing images and make sure the words you select make sense. Use large fonts. Always omit needless copy and delete fluffy sentences that sound introductory in nature, seemingly designed to set the stage for your pitch. They only serve to ‘clear your throat’ before the presentation of what you really want to say. And, they bore recipients driving their attention away before they get to the core of your message. Avoid overly clever subject lines. Donor prospects don’t want to play games and solve riddles.
Also, recognize that hardly anyone reads marketing communications. Everyone skims. Therefore, you should employ bolding, underlining, and even highlighting (usually in yellow) to help the recipients of your messages graze over your them first to get the jist. If you help them do what comes naturally, they’ll take a second look. Making them read every word and every line will force them to work too hard and encourage them to decamp promptly.
If you’ve removed enough friction and captured your donor prospects’ attention for more than a second or two, you will likely need to support their decision to take engage further and finally make the gift. When marketing rollover IRAs, one of the best support mechanisms we have employed is the testimonial. Social norms are powerful influencers. People like to see that others have done what they are considering.
Testimonials reduce friction because they provide your donor prospects with comfort in knowing that they’ll be ok if they move themselves forward. Use them but be sure yours are from real people. It’s important to always be honest with your supporters. Never lie or mislead them or you might get outed by the media. For example, in 2009 Forbes Magazine wrote an article about a planned gift marketing company that acknowledged that the name they used in most of the promotions they placed on hundreds of websites developed for their customers, Valerie Green, was completely made up. The CEO said at the time that the details were based on reality yet he revised the pages quickly.
After your prospective donor understands your message and has gained comfort from your support mechanisms, it’s time to acquire the lead. At this point it is essential that you give supporters as many options as possible so they can move themselves forward in a way that suits their needs.
Remember, it’s about them, not you or your organization. Make it easy, convenient, and comfortable and you’ll acquire more leads. Try to pigeon hole your donors into only one conversion option and you’ll lose those that find what suits you to be unappealing or worse, disagreeable.
Here is a list of conversion options we recommend you include in all of your communications to reduce friction both online and offline:
The information in this guide is not intended as tax, legal or financial advice and is provided on an “as is” basis with no guarantees whatsoever. Any marketing actions you take are strictly at your own risk.
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