Donating Retirement Plans to Charity

Donating Retirement accounts to charity can be an easy and financially beneficial strategy for you and the charity. Many people feel they do not have enough assets at death to leave to a charity they supported during their lifetime and also sufficiently provide for their family or other beneficiaries.

There are two tax savings benefits to naming a charity as a beneficiary of your retirement plan accounts. Retirement accounts such an IRA, 401(k) and 403(b) are subject to income taxes federal estate taxes. When a charity receives these funds it will not pay income taxes and the benefits paid to the charity will not be subject to estate taxes because of the charitable deduction.

The tax savings to a charity is significant when compared to an individual receiving the same funds. When a retirement account is left to an individual it first may be subject to federal estate taxes (40% for gross estates exceeding $5.49 million). Secondly, as distributions are made to the individual beneficiary it is subject to income taxes. Only a small portion of the retirement account is ultimately left to the individual beneficiary due to these two taxes. On the other hand, the charity will receive the retirement account 100% tax free! Instead, consider leaving other more favorable taxed assets to your family or other beneficiaries.

An additional benefit of designating a charity as a beneficiary of a retirement account is that they receive the funds immediately and are not subject to probate or further estate administration expenses and involvement. Leaving retirement accounts to a charity is also easy for the donor. The donor simply completes and files a beneficiary designation form with the financial institution. As with all planning, be sure to work closely with your financial and legal advisors.