Charitable IRA Beneficiaries
A Legal Moment

Estate Planning Strategies:  Designating Charities as IRA Beneficiaries

   If you intend to make gifts to charities at your death, you might want to consider using your IRA or other tax-deferred retirement plan to do so as a means to enhance gifts to your beneficiaries.

   When you designate an individual as a beneficiary of your tax deferred (“tax-qualified”) retirement plan, the distribution to that individual is subject to income tax liability at that person’s tax rate – and the amount reaching the beneficiary’s pocket is reduced accordingly. By contrast, when the beneficiary is a qualified, tax-exempt charitable organization, the entire distribution from your IRA goes to the charity. So, with careful planning, you may be able to effectively increase the size of your estate available for your chosen beneficiaries by removing the IRS as an unwanted “beneficiary” of a portion of the tax-deferred funds.
   For example, if A leaves a $5,000 IRA to her nephew and a $5,000 bequest to her favorite charity, the total amount actually received by these beneficiaries will be reduced by the amount the nephew is required to pay in income taxes on distribution(s) from the IRA. If instead A switches the assets and leaves a $5,000 bequest to her nephew and the $5,000 IRA to the charity, the income tax related to IRA distributions is eliminated, and the total amount received by A’s beneficiaries is the full $10,000 of A’s assets. The income component -- and potential savings -- can be especially significant where a person’s non-charitable beneficiary (A’s nephew) is in a high income tax bracket.  There may be state income tax savings as well.
Should You Name a Charity on Your IRA?
   Naming a charitable organization as beneficiary of your IRA should only be considered if you want to make charitable gifts.  You may instead want to leave all your assets to your spouse, or to your children, or others. And even if you want to make charitable gifts, there may be reasons you want to leave your IRAs to other beneficiaries. (For instance, in the example above, A may view the IRA as a way to trigger her nephew’s interest in planning for his own retirement.)
   If you have decided to name a charity as a beneficiary, you must next decide whether to name the charity as a primary or secondary (“contingent”) beneficiary. For example, an IRA owner with a spouse will likely want to make retirement benefits available to the spouse, but may want to designate a charity as the contingent beneficiary in the event the spouse predeceases the IRA owner.

   The foregoing issues should be discussed with your estate planning attorney.
   Still another question is whether you want to designate all or just a portion of your IRA to the charity. If you designate only a portion, care must be taken after the IRA owner's death to avoid unfavorable tax consequences for the non-charitable beneficiaries. One way to avoid worrying about this complication is to split your IRA into separate IRAs for the charitable and non-charitable beneficiaries.
   Keep in mind that you can change beneficiaries, including charities, without having to change your other estate planning documents.
What About Your Roth IRA?
   The considerations raised in this article do not apply to Roth IRAs.  Distributions from inherited Roth IRAs are not income-taxable to individual beneficiaries.  Traditional IRAs and other retirement plans which consist of pre-tax contributions and associated earnings are the only plans which are the subject of this article.

    Designating charities as beneficiaries of IRAs can be an easy and estate-enhancing way to make your charitable gifts, if this estate planning strategy is compatible with your overall estate plan.  Your estate planning attorney should be consulted to evaluate whether this strategy is appropriate for your situation.

Caveat:  IRS rules and regulations and retirement plan administrators’ policies concerning retirement plan distributions are complex, and there are a number of considerations for any particular person making decisions regarding his or her retirement plan beneficiary designations.  This article provides generalizations only, and is not intended to provide advice for any particular retirement plan designation situation or decision.  Please consult with your estate planning attorney, and with your retirement plan administrator, with respect to beneficiary designations for your tax-deferred retirement plan benefits.


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Gay Vinson is an attorney at Marshall, Roth & Gregory, PC. Her practice is concentrated in trust and estate planning and administration.
   Feel free to contact Gay ( to receive more information on this topic or to suggest topics for future editions of 'A Legal Moment'.  Or visit our firm's website.

     Other articles which may be of interest to you may be found in our Newsletter archives.

You may not rely on this content as legal advice for any specific situation, but should instead contact an attorney for specific advice.
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