Making an Estate Gift Using Your IRA: A Simple and Tax-Efficient Way to Leave a Legacy 

For many individuals, retirement accounts like IRAs (Individual Retirement Accounts) are among the most significant financial assets they accumulate over a lifetime. While these accounts are designed to provide income in your later years, they can also serve as an effective tool for charitable giving as part of your estate plan. By making an estate gift using your IRA, you can support the causes and organizations you care about while enjoying certain tax advantages that benefit both your estate and the charity. 

This article outlines the benefits of using your IRA to make an estate gift and provides a step-by-step guide to help you leave a lasting legacy. 

Why Consider Making an Estate Gift with Your IRA? 

While IRAs are valuable financial tools during your lifetime, they can be less advantageous when passed on to heirs due to tax implications. When non-spousal beneficiaries inherit an IRA, they must typically withdraw the funds over a 10-year period and pay income tax on the distributions. This can significantly reduce the amount of the inheritance. However, when you designate a charity as the beneficiary of your IRA, the charity can receive the full value of your gift tax-free, making it an excellent option for estate planning. 

Here are some key reasons to consider using your IRA to make an estate gift: 

• Tax Efficiency – Charitable organizations are tax-exempt, meaning they can receive the full value of your IRA gift without paying income tax. If your heirs inherit the IRA, they may face significant income taxes on the distributions, which can reduce the amount they ultimately receive. By leaving your IRA to a charity, you avoid these taxes and maximize the impact of your gift. 

• Simplicity – Designating a charity as the beneficiary of your IRA is a straightforward process. You don’t need to revise your will or trust to include the gift, and the IRA funds can bypass probate, ensuring a smooth and efficient transfer to the charity. 

• Flexibility – You can leave all or a portion of your IRA to a charity. If you want to balance charitable giving with providing for your family, you can designate a percentage of the account for the charity and the remainder for your loved ones. 

• Avoiding Estate Taxes – In addition to income taxes, your estate may be subject to estate taxes depending on the size of your estate and federal or state tax laws. Leaving your IRA to a charity can help reduce the overall value of your taxable estate, potentially lowering estate tax liability. 

• Support a Cause You Care About – Making an estate gift using your IRA is a powerful way to leave a legacy and continue supporting the causes that matter to you. Whether it’s a nonprofit, a religious organization, or an institution like Camp Ondessonk, your IRA gift can make a lasting impact. 

Making a gift from your IRA as part of your estate plan is a simple process. Here’s a step-by-step guide to help you get started: 

1. Review Your IRA Account 

The first step is to determine how much of your retirement savings you would like to allocate to charitable giving. You don’t have to leave the entire IRA to a charity; you can designate a specific percentage or dollar amount, leaving the remainder to family or other beneficiaries. 

2. Choose a Charity 

Once you’ve decided to make an estate gift using your IRA, choose the charity or organization you want to support. It’s important to confirm that the organization is a qualified tax-exempt charity, as only qualified organizations can receive IRA distributions tax-free. 

3. Update Your Beneficiary Designation Form 

One of the easiest ways to make a charitable gift with your IRA is to designate the charity as a beneficiary. You can do this by contacting your IRA custodian (the financial institution that manages your account) and requesting a beneficiary designation form. 

On the form, you can specify the charity as either the primary beneficiary or a contingent beneficiary. 

• Primary Beneficiary: The charity will receive the funds directly upon your death. 

• Contingent Beneficiary: The charity will only receive the funds if the primary beneficiary (such as a spouse or family member) predeceases you. 

Be sure to include the charity’s legal name, tax identification number, and address to ensure proper distribution. 

4. Communicate Your Wishes 

While updating your beneficiary designation is the most important step, it’s also a good idea to inform the charity of your plans. This allows the organization to recognize your future gift and ensure your intentions are honored. Additionally, you may want to inform your family members and estate executor of your charitable wishes to avoid any confusion later. 

5. Review and Update Periodically 

Life circumstances and financial situations can change over time, so it’s important to periodically review your beneficiary designations. If your charitable priorities shift, or if you experience significant changes in your financial situation, you can easily update the beneficiary designation with your IRA custodian. 

Making an estate gift using your IRA is a simple, tax-efficient way to support the causes that matter most to you. Whether you leave your entire IRA to a charity or designate a portion for charitable giving, this strategy allows you to reduce tax burdens on your estate while making a lasting impact. By taking the time to review your beneficiary designations and including charitable giving in your estate plan, you can ensure that your legacy lives on through the organizations and causes that reflect your values. 

If you’re passionate about supporting a nonprofit like Camp Ondessonk or another organization close to your heart, consider making an IRA estate gift and leaving a meaningful legacy for future generations. 

Click here to learn more about Ways to Give.