IRA Gifts to Charity: The Ideal Asset to Gift at Death

As gifts to charity, Individual Retirement Accounts (IRAs) are among the best assets for charitable giving at death. If you are looking for a way to make a charitable donation, reduce estate taxes, and receive charitable tax deductions on income taxes and you have an IRA account that you don’t need income from, consider making a charitable organization the beneficiary of that account.

There are three reasons the Ohio planned giving attorneys at Gudorf Law Group, LLC recommend this strategy:

  1. Income tax on the money is completely avoided
  2. Donors receive charitable tax deductions on the full amount donated to charity
  3. Making the donation is easy– just designate a qualified charity as the account beneficiary

How IRA Gifts to Charity Work

Since income deposited into an IRA is deferred, an IRA owner will pay taxes on any distributions from the account. Retired individuals, especially wealthy individuals with large IRA balances, are usually in a higher tax bracket than when the money went into the account. They, therefore, are likely to pay more taxes when they receive distributions from the account. Additionally, since the account funds have appreciated, they will pay more tax on more money. They could leave the entire account (less annual distribution requirements after age 70 1/2) to their children, but the children would also pay tax on the distributions.

By designating a charitable organization as beneficiary of an IRA, all income tax on the account balance is avoided because charities don’t pay income taxes. Individuals who want to include gifts to charity as part of their legacy and have both tax-deferred assets, like IRAs, and other non-tax-deferred assets in their estate can give more to both charitable organizations and their heirs by gifting the tax-deferred assets to charity and leaving the other assets to heirs.

Additionally, the tax-deferred gifts to charity reduce the amount of the donor’s estate subject to estate tax, which results in a reduction of estate tax. Lastly, donors receive charitable tax deductions against income taxes for the amount donated to charity.

Donating an IRA to a charitable organization is also easier than most other strategies for charitable giving. There’s no need for complex instruments to be drafted, as there is for trusts or annuity agreements. Simply designate the charity as beneficiary of the account using the beneficiary designation form provided by the IRA custodian or plan administrator. You’ll also need to contact the charity to let them know about the donation and obtain the forms necessary to report the transaction to the IRS. All in all, it’s relatively simple and low-cost compared to charitable trusts, annuity agreements, foundations, donor advised funds and similar approaches to charitable giving.

Find out more about IRA gifts to charity

If you are interested in making gifts to charity and have an IRA or other tax-deferred accounts, the Ohio planned giving attorneys at Gudorf Law Group, LLC can show you how to donate those funds tax free to charity and receive a charitable tax deduction. Arrange a free consultation on ways to give tax-free gifts to charity by calling 1-877-483-6730.