Use Your IRA to Avoid the Tax Bite
This summer I received an email from an alum who graduated from Hopeworks more than 60 years ago. (This is somewhat a feat in itself.) He told me that he was recently updating his estate plan with his advisors and expressed his desire to make a planned gift to Hopeworks. He has a wide variety of assets including a substantial IRA.
However, none of his advisors mentioned the possibility of the alum making a gift from his IRA to Hopeworks. He thought he had recently read an article about the advantages of using IRAs for planned gifts, so he did some research on his own and discovered the following facts:
- There is eventually an income tax due on the entire amount of his IRA.
- If his estate is large enough, there is an additional estate tax on the entire amount.
- A lack of planning for some individuals could result in nearly 60 percent of their IRAs going into the government’s coffers.
- In 2011, if alumns are 70 ½ or older, they can eliminate income tax on their annual required distribution by directing the amount be paid directly to Hopeworks.
- He can also save his heirs income and possible estate taxes by making a simple change to his beneficiary designation to include Hopeworks.
After he verified all of the above, he sent me a second email wondering why more donors don’t use their IRAs for charitable purposes. Based on my 35 years of administrating all types of IRAs, I made the following reply to him:
- IRAs did not come into existence until the late 1970s, and the existence of large IRAs is a fairly recent phenomenon.
- This alum’s generation of retirees (now in their 70s) is the first to have a form of profit-sharing or 401(k) plan instead of a traditional pension plan as their chief retirement vehicle. As they retired, their retirement plan accumulation (often upwards of $1 million) ended up in a rollover IRA.
- But perhaps the main reason that more IRA dollars are not used for charitable purposes is a result of the attitude of many IRA custodians and trustees towards such a purpose. Many of these institutions feel it may be an inconvenience to them to have to deal with a non-individual entity such as a charity. Even their own beneficiary designation forms are drafted so that it appears that you have no choice but to name individuals as beneficiaries.
What You Can Do
If you wish to use your IRA as part of your planned gift, contact your IRA custodian and mention that you wish to name Hopeworks ‘N Camden as a beneficiary. If they are hesitant to allow this, your attorney or accountant can assist you to find a custodian that is more user-friendly and open to this type of gift.
