Donating retirement assets: a tax-smart way to give.

By Tresp, Day & Associates · March 3, 2022

Charitable giving and tax planning work best together, and retirement accounts are a perfect example. The very feature that makes an inherited traditional IRA a tax burden for your children makes it an ideal asset to direct to charity.

Why retirement assets are efficient to give

Money in a traditional IRA or 401(k) has never been taxed. If your children inherit it, they pay income tax on every withdrawal. A qualified charity, by contrast, pays no income tax, so a dollar of retirement account is worth full value to charity but less to an heir. Directing retirement assets to charity and other assets to heirs can maximize what everyone receives.

Two tools to know

Qualified charitable distributions (QCDs): If you’re of the qualifying age, you can transfer funds directly from your IRA to charity, satisfying required minimum distributions without the income being taxed. Charitable beneficiary designations: Naming a charity (or a charitable trust) as beneficiary of a retirement account passes it to the cause tax-free at death, outside probate.

Coordinate it

These strategies are most powerful as part of a coordinated estate and charitable plan, sometimes paired with a private foundation or charitable trust for larger giving. Tresp, Day & Associates helps families give in the most tax-smart way. Coordinate specifics with your tax advisor.