Donating during your lifetime: In order to donate retirement plan assets during your lifetime you would need to take a distribution from the retirement account, include the distribution in your income for that year, account for any taxes associated with the distribution, and then contribute cash to the charity—with one exception. People who are age 70 ½ or older can contribute up to $100,000 from their IRA directly to a charity and avoid paying income taxes on the distribution. This is known as a qualified charitable distribution. It is limited to IRAs, and there are other exclusions and considerations as well.

As part of an estate plan: By contrast, there can be significant tax advantages to donating retirement assets to charity as part of an estate plan. When done properly, charitable donations of retirement assets can minimize the amount of income taxes imposed on both your individual heirs and your estate.

Retirement plan benefits are only payable to the employee or account holder who earned them, with a few exceptions for spouses or survivors. With the exception of a qualified charitable distribution as described above, distributions from non-Roth retirement plans are taxable as ordinary income to the person who receives them.

This is true whether the recipient is the original account holder or a beneficiary of the account holder. Unlike other inheritances that can be passed to heirs free of income tax, distributions from inherited retirement plans are taxable as ordinary income to the person who receives them.

When you name a charity as a beneficiary to receive your IRA or other retirement assets upon your death, rather than donating retirement assets during your lifetime, the benefits multiply:

  • Neither you and your heirs nor your estate will pay income taxes on the distribution of the assets.
  • Your estate will need to include the value of the assets as part of the gross estate but will receive a tax deduction for the charitable contribution, which can be used to offset the estate taxes.
  • Because charities do not pay income tax, the full amount of your retirement account will directly benefit the charity of your choice.
  • It’s possible to divide your retirement assets between charities and heirs according to any percentages you choose.
  • You have the opportunity to support a cause you care about as part of your legacy.

When you’re ready, making a charity the beneficiary of your IRA or other retirement assets is typically straightforward: Fill out a designated beneficiary form through your employer or your plan administrator. Most banks and financial services firms also have beneficiary forms, or they can provide you with suggested language for naming beneficiaries to these accounts. Once the designated beneficiary forms are in place, the retirement assets will generally pass directly to your beneficiaries (including charities) without going through probate.

If you are married, ask the plan administrator whether your spouse is required to consent. If required but not done, this could result in a disqualification of the charity as your beneficiary.

Be clear about your wishes with your spouse, lawyer and any financial advisors, giving a copy of the completed beneficiary forms as necessary.

Please contact your lawyer or financial advisor about the options that would work best for you and your family.