Donating Retirement Assets

Donating Retirement Assets

Retirement Assets and Taxes

Depending upon the size of your estate, as much as 60 percent can be taxed when you leave retirement assets to family members.  That means and IRA valued at $100,000 could be reduced to only $40,000 for your loved ones.

What’s important to remember about any qualified retirement plan is that no tax has been paid on this income.  While you can strive to defer taxes as much as possible but at some point taxes will need to be paid either by the employee who set it up or the beneficiary when withdrawals are made. 
When a beneficiary receives an inherited IRA the balance may be subject to estate taxes as much as 35 percent or more plus income taxes when making withdrawals. 

With the help of a skilled fiduciary financial planner, you can set up a withdrawal process that minimizes or stretches out the tax burden. However, there is another tax-savvy strategy which generous families should consider.

An IRA can serve as a strategic way to support churches, ministries, or charitable causes that are important to you.  Many 401k, 403b and other qualified plans that are holding retirement assets are eventually rolled over into an IRA.  Current tax law still provides significant incentives for what is termed as a qualified charitable distribution from and IRA.  The IRS defines a qualified charitable distribution as a gift:
  • Made by an individual age 70 ½ years of age or older
  • Paid out of an individual’s traditional or Roth IRA;
  • Given to a qualified charitable organization
Because charitable gifts made from an IRA are not subject to income taxes and also count towards the required minimum distribution for the year, donating assets can oftentimes be more beneficial.  Staying with the inherited IRA example above, a charitable distribution would result in the full $100,000 being realized by the church or charitable organization to help fuel the mission and vision.

Individuals cannot receive a charitable tax deduction for distributions made from an IRA.  The primary tax benefit is not having to include the distribution in your gross income and avoiding income taxes.  Taking a charitable deduction is viewed as a double benefit and is prohibited.

Donating retirement assets as Strategic Kingdom Giving

"...For the people of this world are more shrewd in dealing with their own kind than are the people of the light. I tell you, use worldly wealth to gain friends for yourselves, so that when it is gone, you will be welcomed into eternal dwellings."  Luke 16:8 (NIV)The Parable of the Talents (Matthew 25:14-30) encourages believers to consider how to multiply what God has entrusted to them. If we can distribute 60 percent more of our assets to Kingdom purposes leveraging current tax law, we are being wise stewards of the resources God has entrusted to us.