Leaving your IRA to Charity - A Wise idea?

Giving to Your Church or Favorite Charity with Your IRAs

Did you know…that a combination of estate taxes, income taxes, and generation-skipping transfer taxes can consume a large portion of a retirement plan account, such as an IRA?

For many people, the money accumulated through the years in retirement represents a significant percentage of their total assets. Even with the minimum distribution rules for mandatory withdrawal, many of these plans will still have large balances at the end of the life of the owners. People are often very surprised to learn that assets they thought would simply pass to heirs from their qualified retirement account are among the most heavily taxed assets in their estate.

There are ways to avoid, or significantly reduce, these taxes. A qualified retirement plan or IRA may be the best asset to make a gift to your favorite Church or Charity for at least two important reasons:

1.) When you name your favorite Charity as the beneficiary of your retirement plan or IRA, you potentially eliminate three taxes:

a.) the income tax,
b.) the generation-skipping transfer tax, and
c.) the estate tax on the funds in the plan.

Therefore, an IRA can be a terrific asset to donate to charity.

2.) While you are alive, you have complete control of the IRA or retirement plan – so if you should need the money before you pass away, it is still in your control.

How Can I Do This?

It’s simple to do – Assign the charity as the beneficiary of your Traditional IRA or other qualified retirement plan using the Beneficiary Designation Form.

The funds from the IRA or qualified retirement plan that you leave to charity qualify for an estate-tax deduction and are not subject to income taxes because the charity is tax-exempt. Thus, using these assets, you can make a significant charitable gift at relatively little cost to you or your heirs. All you have to do is name the charity as beneficiary of a portion of your IRA or qualified retirement fund. It can be a percentage or even the entire amount if you wish. Following your death, that portion of remaining funds will be paid to the charity in a lump sum, totally tax-free.

It is Simple and Fast.

And gifting your IRA this way is simple. All you have to do is fill out a Traditional IRA Beneficiary Designation/Change Form naming your favorite church or charity as your beneficiary, and file it with you plan administrator.

You are always in control. You can change your beneficiary at any time, simply by completing a new BDF Beneficiary Designation Form. Please note that IRA and other Retirement Assets pass to the designated beneficiary through the use of the Beneficiary Designation form, and are NOT affected by changes to your Will, your Trust, or other documents.

If you’d like to discuss this further, or want assistance in designing or implementing this strategy, please call our office to make an appointment: (808) 395-0200.

 

The tax information and estate planning information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. LPL Financial does not provide legal or tax advice. Federal and state laws and regulations are complex and are subject to change. Always consult an attorney or tax professional regarding your specific legal or tax situation.