Why Give Retirement Plan Assets to Charity: Avoid Paying Up to 65 Percent in Taxes
Did you know that retirement accounts are exposed to income taxes that could be 35 percent or
higher upon your death? Estate taxes could consume even more. Ouch! The good news is that
these taxes can be eliminated or reduced through a carefully planned charitable gift.
How Retirement Accounts Are Taxed
Qualified retirement plans receive favorable income tax treatment during your lifetime. No income
tax is owed on the funds as they are contributed, and no income tax is owed on the earnings and
appreciation while in the plan. You pay taxes on the funds only when you withdraw them. The
balance left in your qualified retirement plan, however, is subject to estate taxes when you die. And
giving the account balance to individual heirs exposes them to income taxes up to 35 percent on the
funds. Your retirement dollars can be seriously depleted by this double taxation.
Do More With Your Retirement Account
Other strategies come into play when deciding to use retirement plan
assets for charitable giving. Upon death, your account can pass directly to
us as your primary beneficiary. Or, it can be used to pay an income to
someone you name for his or her lifetime, after which the remaining assets
pass to our organization.
Example: Bill is considering adding a charitable bequest to his will, with
the residue of his estate passing to his children. If he decides instead to
name his charity of choice as beneficiary of his profit-sharing account, the
death benefit passing to the organization will qualify for the estate tax
charitable deduction, and it will also pass free of any income tax
obligation. His children will benefit from this change because, rather than
getting the profit-sharing account proceeds that are subject to income and
possibly estate taxes, they will receive other assets of his estate that are
free of taxes.
Provide Income for Life for a Loved One
Another tax-benefiting possibility is to give retirement assets at your death
to a tax-exempt deferred giving plan, such as a charitable remainder
unitrust or a charitable remainder annuity trust. You designate who will receive income for life from
the trust. The income can be either fixed or variable—whichever you choose. After the death of your
income beneficiary, the remaining balance will support our work.
By naming a deferred giving plan as the ultimate beneficiary of your retirement account, income
taxes can be deferred until paid from the trust to the income beneficiary you designate.
The simplest way to leave the balance of a retirement account to us after your lifetime is to list us as
the beneficiary on the beneficiary form provided by your plan administrator. If you are married, your
spouse must sign a written waiver (even though you may designate a charitable organization as
beneficiary on your employer's forms). A waiver is not required for IRAs, however. If you prefer to
make your spouse the primary beneficiary of the retirement account, you can name us as the
contingent beneficiary. For your children to benefit, you could designate a specific amount to be paid
to us before the division of the rest among them.
For more information, please seek guidance from an estate planning attorney, a CPA and other
professionals who are thoroughly versed in this area of tax law, because the laws vary depending on
when and how you make the gift.
Copyright: The Stelter Company, All rights reserved.The information on this website is not intended as legal or tax advice. For legal or tax advice,
please consult an attorney. Figures cited in examples are for hypothetical purposes only and are subject to change. References to estate and income
taxes apply to federal taxes only. State income/estate taxes or state law may impact your results.
American Lung Association
The Planned Giving Department
Copyright © The Stelter Company, All rights reserved.
The information on this website is not intended as legal or tax advice. For legal or tax advice, please consult an attorney. Figures cited in examples are for hypothetical purposes only and are subject to change. References to estate and income taxes apply to federal taxes only. State income/estate taxes or state law may impact your results.