Charitable Giving with Taxable Retirement Accounts

More and more Americans have become better at putting money away towards retirement through 401(k)s, IRAs, and other retirement plans within their organizations.  Unsurprisingly, that means that come retirement, a large portion of an individual's wealth is held in tax-deferred accounts that create taxable income.  For those who are charitably inclined, there are options that individuals can utilize to reduce taxable income and to leave assets to charity or religious organizations while leaving other assets to family and friends that may not be taxable. 

Qualified Charitable Distribution ("QCD"): Once you have reached the age of 70 1/2, you can begin to make distributions directly from your IRA to a qualified 501(c)(3) charity.  By doing this, you can make limit the amount that would otherwise be taxed as ordinary income.  This would also be calculated in your annual required minimum distribution (RMD).  By utilizing a QCD, your taxable income would be lower and could also impact your Medicare premiums by reducing them in future years.

Charity Beneficial Designation:  If you wish to leave a portion of your estate to a charitable organization after your passing, you may be told to write those wishes into your Will or Trust.  Whereas, if you have a sizeable retirement account, it may be best to designate the charity directly as a beneficiary of your 401(k) or IRA assets.  This arrangement allows you to easily change charities you may wish to leave your assets to without the need to update your estate planning documents.  Secondly, you would be leaving taxable assets compared to a charity that is able to avoid taxation on the assets to leaving retirement assets to an individual that would be taxable to them on distribution.  This would allow you to leave the taxable, retirement assets to charities and leave other assets that would not result in income tax to individual beneficiaries.

Utilizing these two options allow you to give to your favorite charities while also obtaining tax benefits for yourself and to your heirs. 

If you have any questions about tax and estate planning, please feel free to contact Glick and Trostin, LLC at 312-346-8258.

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