Your IRA is a force for good
Over 42% of Americans own an IRA. In many cases, IRAs–especially for people who have rolled over one or more employer retirement plans–represent a significant portion of a household’s net worth. When it comes to charitable planning, your IRA may offer some of the best opportunities to support the causes you care about.
For starters, you can consider the benefits of changing the beneficiary designation on your IRA to name your fund at Greater Cincinnati Foundation (GCF) as the recipient of all or a portion of the account. This is an easy, tax-effective way to leave a bequest to support the causes you care about. GCF can help you structure the terms of your fund to match your intended charitable legacy. For example, you can make arrangements for your children to serve as advisors on the fund to recommend grants to particular areas of interest, or GCF itself could deploy your gift to support community priorities.
The IRA beneficiary designation is an ideal form of charitable bequest due to the tax advantages. The assets in your IRA are not subject to estate tax when you pass away. In addition, as a public charity, GCF does not pay income taxes on the IRA assets it receives. By contrast, if you were to name your children as beneficiaries of the IRA, those IRA distributions to your children are subject to income tax, which can be hefty. Plus, the IRA assets would be included in your estate for estate tax purposes.
Exploring ways to give your IRA to charity can also serve as a helpful reminder to review all of your beneficiary designations. Your beneficiary designation forms represent critical components of your estate plan. For example, use the cautionary tale of a Procter & Gamble employee who died in 2015, leaving behind a retirement plan. Way back in 1987, the employee had named his girlfriend as the beneficiary of his retirement plan. Despite their relationship ending, the employee never updated the beneficiary designation. By the time the employee died, the retirement plan, which had grown to nearly $1 million, passed via the beneficiary designation to her.
Are you approaching or over the age of 70 ½? At this age, you can make what’s known as a Qualified Charitable Distribution (“QCD”) from your IRA directly to certain charities, including a designated fund or a field-of-interest fund at GCF – up to $105,000 per year per spouse. You will not pay income tax on the distribution and, happily, if you’ve reached the age for Required Minimum Distributions, your QCDs count toward those distributions.
The takeaway? It’s a great idea to review your financial and estate plan with your advisor and take a close look at your IRAs. If you intend to leave a charitable legacy, or if you’d like to support your favorite organizations during your retirement years, your IRA may be your best bet to make a big difference in the causes you care about. As always, our team is eager to help you amplify your impact. Call us at 513-241-2880.
