Gift of IRAs and Other Retirement Benefits
Naming a tax-exempt charity like JBWS as the beneficiary of your IRA or qualified retirement plan may be one of the most tax-effective ways to make a charitable gift.
Most individuals know the benefits of using retirement plans and IRAs as efficient deferred savings vehicles for retirement and recognize that income taxes are paid upon withdrawing these funds. However, most people are surprised to learn that retirement plans are subject to multiple layers of taxation at their death, in the form of federal and estate tax as well as income tax.
How does this work? At death, the total value of your retirement balance (not just the balance reduced by income taxes) is included in your estate for federal estate tax purposes. That balance might then bear federal estate taxes as high as 35% (through 2012, and potentially higher thereafter). Your beneficiaries will also pay income taxes (at a federal rate as high as 35%, plus state income taxes) on that same balance. After all of these taxes are paid. Your heirs may actually be receiving a net benefit of only a few cents on the dollar.
When you consider what your family might receive from your IRA or pension after income and estate taxes, and you compare that to the full economic benefit a charity would receive (in addition to the estate tax deduction your estate would get), you can see why this is a particularly good way to give to charity.
For individuals who are not yet 70½, tax benefits are only available if you give your IRA or pension to JBWS at your death, rather than during your lifetime. This can be accomplished by changing your beneficiary on your plan’s beneficiary designation form. You should, however, check with your plan administrator or IRA custodian on the specific rules applicable to your particular retirement plan.