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How to Make a Charitable Bequest with an IRA

Posted by Susan Katzen | Jan 08, 2023 | 0 Comments

You can donate retirement accounts, such as an IRA, by distributing the proceeds to charity. However, the tax benefits for donating this way are minimal. A tax-efficient donation strategy is to contribute your retirement fund directly to a charitable organization as part of your estate plan.

Options for Donating an IRA

The two primary options for charitable bequests with an IRA include:

  • During your lifetime – You can donate your retirement funds by taking distributions from the account while alive. You must include the distributions in your annual income, account for distribution taxes, and distribute the proceeds to charity. One exception allows certain individuals to contribute an IRA asset to charity without paying an income tax on distributions. You qualify if you are at least 70 and one-half years old and contribute up to $100,000 directly from your IRA to a charitable organization.
  • As part of an estate plan – Significant tax advantages are available if you include your IRA in your estate plan to donate funds to charity. Charitable donations of retirement assets can reduce the account holder and their heir's income taxes if handled correctly.

Tax Consequences of a Lifetime IRA Donation

Benefits from a retirement plan, such as an IRA, are payable only to the account holder or employee who earned them. Some exceptions allow a spouse or survivor to reap the same benefits.

Non-Roth retirement plan distributions are income taxable for whoever receives the funds, except with charitable distributions through an estate plan. There are tax implications, whether the recipient is the account holder or their beneficiary.

IRA Donations upon Death

You can name a charity as the beneficiary of your IRA account. The benefits of this method include:

  • The gross estate must include the value of the asset. The estate will receive a tax deduction for a charitable contribution that can offset estate taxes.
  • You, the estate, and your heirs don't have to pay income taxes on your IRA distribution.
  • Charities don't pay income tax, so the organization will receive the total amount of your donation.

Designating a Charity as an IRA Beneficiary

Typically, designating a charity as the beneficiary of an IRA account is simple. Fill out the necessary form, and you're done. Your plan administrator or employer should provide the form upon your request. If your IRA is through a bank or financial service, they can give you the beneficiary form or advise you of the appropriate language for naming a beneficiary on the account.

The account should pass to the charity upon your death without going through probate. That means they don't have to wait for a probate judge to approve distribution. The funds should automatically transfer when you die.

Contact a Newport Beach Estate Planning Lawyer

You should seek assistance from an experienced Newport Beach estate planning lawyer. Donating retirement proceeds to charity is only beneficial if you correctly handle the account. Without the proper beneficiary form or language in your estate plan, your chosen organization might not receive the funds you leave behind.

Contact us immediately if you want to discuss how to set up an IRA charitable bequest. Let our team review your options and advise you about which can benefit you and your beneficiaries most. To schedule an appointment with a Newport Beach estate planning lawyer at our law firm, contact 714-374-2244.

About the Author

Susan Katzen

"I firmly believe our clients should be treated the way I would want my own family members to be treated. As a result, not only have I put together a compassionate and highly skilled team of people, but together we have served families from the grandparents down to the grandchildren. My staff and...

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