To say that the total dollar amount in Americans’ retirement accounts is massive would be an understatement. Accounting for 30% of all household financial assets, at the end of 2022 total retirement assets in the United States topped more than $33 trillion dollars, including assets in IRAs, defined contribution plans such as 401(k)s and 457 plans, pension plans, and annuities. IRAs topped the charts at $11.5 trillion–the most assets of any category.
large balances in traditional IRA accounts (not to be confused with Roth IRAs)
are partially due to the fact that many taxpayers have rolled
over–tax-free–assets from their employer-sponsored qualified retirement plans
to IRAs after retiring or changing jobs.
you have one or more traditional IRAs, you’re probably familiar with the
- An IRA can have multiple beneficiaries following your death, and you can designate a dollar amount or percentage of assets.
can change your IRA beneficiaries as often as you like, and beneficiaries can
differ across your multiple IRA accounts.
a beneficiary dies before you do, and you don’t change the beneficiary
designation, the assets will be proportionately reallocated to remaining
beneficiaries when you die.
a critical additional point that is often overlooked: Designating your
fund at the PACF or another charity as the beneficiary of all
or a portion of your IRAs is extremely tax advantageous. If you intend to
leave money to charity when you die, chances are that this technique is
absolutely the best option if you own other assets, such as stock or real
estate, to leave to your family members or other heirs.
is it so beneficial to leave your IRA to charity and other assets to your
family? Three words: taxes, taxes, and taxes.
IRAs are included in your estate for federal estate tax purposes when you die.
The current exemptions are set at such high levels
right now that they do not affect as many taxpayers as they used to, but for
many families, estate taxes are still an issue. If you leave your IRA to
charity, estate taxes do not apply to that balance.
the bulk of the balance in an IRA (sometimes the entire amount) is counted as
income when IRA withdrawals are taken by your estate or your heirs. If a
charity receives your IRA, the charity will not pay these income
highly-appreciated stock and other non-retirement assets you own outside of
your qualified retirement plans when you die get a “step up” in basis, meaning
that your beneficiaries who receive and then sell the assets won’t pay capital
gains tax on the appreciation that occurred before you died. The beneficiaries of the stock will only be responsible for income on capital gains earned during their own lifetimes. And, inherited,
non-retirement assets are not included in the beneficiary’s income for tax
bottom line here is that if you are choosing between stock and an IRA to leave
one to your children and the other to charity, leaving the IRA to charity and
the stock to your children is a no-brainer.
The team at the PACF is honored to serve as a resource and sounding board as you build your charitable plans and pursue your philanthropic objectives for making a difference in the community. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. Please consult your tax or legal advisor to learn how this information might apply to your own situation.
Have questions? Please reach out to the team at the PACF. We are happy to help!