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Charitable giving through retirement accounts 

On Behalf of | Nov 24, 2021 | Estate Planning - Estate Administration & Probate

It’s that time of year where everyone starts to think about making charitable donations, whether that be for the simple act of kindness, the goal of reducing income taxes owed for the year or both. Whatever the reason, if you have charitable intentions heading into the holiday season, this post is for you.

This post discusses using retirement accounts for charitable giving. There are many benefits to using your traditional retirement accounts to make lifetime charitable gifts and to make charitable bequests upon your death.

For lifetime charitable gifts, if you are over the age of seventy-two (72) years and, as such, are now forced to take required minimum distributions (RMDs) from your retirement accounts, consider using your RMDs to make your charitable gifts. The RMDs can be distributed from your retirement account to the charity of your choice at your specific direction. The largest benefit to this approach is that you avoid paying the income taxes on the RMD if the charity is a deemed a qualified charity by the IRS. Pursuant to Section 501(c)(3) of the Internal Revenue Code a qualified charity is an organization that has been granted tax-exempt status by the IRS and is eligible to receive tax-deductible charitable contributions.

In addition, if you want to give more than your RMD to a charity, under current law you can also make additional distributions from your retirement accounts, called a qualified charitable distribution (QCD). The current limit for a QCD for Tax Year 2021 is $100,000.00 per person. These charitable gifts would also be made directly from your retirement account to the charity.

For charitable bequests of funds upon your death, you should designate those charities as a partial beneficiary of your retirement accounts instead of including a specific bequest to those charities in your Will or Trust. The largest benefit to this approach is that the charities do not have to pay income taxes on the proceeds received from the retirement accounts (if the charities are qualified charities). An individual beneficiary is required to pay taxes on all money they withdraw from the retirement account they inherit after your death, so you get the additional benefit of leaving more of your money tax-free to your loved ones.

Contact us to schedule a free consultation to learn more about incorporating charitable giving as part of your estate plan by making QCDs or updating the beneficiaries to your traditional retirement accounts.