When balancing financial goals for retirement, charitable giving, and whatever is left to give to your heirs, an Individual Retirement Account (IRA) is typically set aside to provide additional retirement income and benefit heirs. However, there may be a different strategy that makes more efficient use of these funds by reducing taxes.
For instance, a couple, or in many instances, a surviving spouse, may have more than he or she needs in an IRA. This is money that was saved, but the person has enough for retirement with other income and pensions. A simple swap strategy will let you use an IRA to provide a gift for charity, rather than your other already tax-free funds, and also to reduce the children’s or grandchildren’s estate taxes.
The Naples Florida Weekly poses the question, why give it to the government, when this strategy is available, in the article “IRAs can benefit charity while reducing taxes for heirs.”
This switch is accomplished by making the beneficiary of an IRA a charitable bequest. The charity gets more of a donation tax-free than they otherwise would have if they received all of their inheritance from the IRA after the fact.
Those who itemize their tax returns and are older than 70 may also be able to start giving now out of an IRA fund to yield greater tax savings strategies while helping charities. This is called a charitable rollover. This gift through an IRA doesn’t appear on your income tax return as income, and the IRS has approved of this strategy for many years, although it’s not a permanent possibility. Congress decides yes or no during the last weeks of the year.
Philanthropy through IRAs is often an overlooked strategy.
With children and charity to consider, money is left to one at the expense of another, so you always want to try to balance things out. Especially in this case, estate planning for your charitable bequests through an IRA needs to be done by an experienced estate planning attorney.
Your attorney can help with a spousal waiver, for instance, since an IRA typically benefits the surviving spouse. Also, you have many ways that IRA funds can be divided up, such as donating it in full to a single charity, benefiting a private family foundation, a religious organization, or animal welfare.
If you want to donate to charity and have no heirs, using the IRA is a no-brainer. It’s the most efficient way to get dollars to a charity.
Reference: Naples Florida Weekly (November 12, 2015) “IRAs can benefit charity while reducing taxes for heirs”