Your IRA is a force for good

By Chip DeBuse

It probably would not surprise you to learn that over 42% of Americans own an IRA. In many cases, IRAs–especially for people who have rolled over one or more employer retirement plans–represent a significant portion of a household’s net worth. When it comes to charitable planning, IRAs should never be ignored. Indeed, your IRA may offer some of the best opportunities to support the causes you care about. 

For starters, no matter what your age, consider the benefits of changing the beneficiary designation on your IRA to name your fund at the Lincoln Community Foundation as the recipient of all or a portion of the account. This is an easy, tax-effective way to leave a bequest to support the causes you care about.

The Philanthropy Services team at LCF can help you structure the terms of your fund to match your intended charitable legacy. For example, you can make arrangements for your children to serve as advisors on the fund to recommend grants to particular areas of interest or direct the Foundation itself to deploy the money to support the community’s areas of greatest need. 

The reason an IRA beneficiary designation is such an ideal form of charitable bequest is because of the tax advantages. Dollars flowing to the Lincoln Community Foundation from an IRA upon your death are not subject to estate tax. In addition, as a public charity, LCF does not pay income taxes on the IRA assets it receives.

By contrast, if you were to name your children as beneficiaries of the IRA, those IRA distributions to the children are subject to income tax, which can be hefty given the tax treatment of inherited IRAs. Plus, the IRA assets would be included in your estate for estate tax purposes. 

Exploring ways to give your IRA to charity can also serve as a helpful reminder to review all of your beneficiary designations. Although this task may be easy to overlook, beneficiary designation forms actually represent critical components of your estate plan.

To understand this, you need look no further than the cautionary tale of a Procter & Gamble employee who passed away in 2015, leaving behind a retirement plan. Way back in 1987, the employee named his girlfriend as the beneficiary and, despite their relationship ending, never updated the beneficiary designation. When the employee died, the retirement plan, which had grown to nearly $1 million, passed via the beneficiary designation to, you guessed it, the 1980s ex-girlfriend.  

Finally, if you have reached the age of 70 ½, you can make what’s known as a Qualified Charitable Distribution (“QCD”) from your IRA directly to certain charities, including a designated fund or a field-of-interest fund at the Lincoln Community Foundation–up to $105,000 per year per spouse in 2024. You won’t pay income tax on the distribution and, happily, if you’ve reached the age for Required Minimum Distributions, (age 73) your QCDs count toward those distributions.

The upshot? Next time you review your financial and estate plan with your advisor, take a close look at your IRAs. If you intend to leave a charitable legacy, or if you’d like to support your favorite organizations during your retirement years, your IRA may be your best bet to make a big difference in the causes you care about.

To learn more, reach out to me or any of my colleagues at 402-474-2345. We’re here to help.