Don’t Give Your IRA to the IRS

By Leah Richman
Endowment Counsel/ Associate VP, Gift Planning
Jewish United Fund of Metropolitan Chicago

Contributing to an IRA is a great way for those with earned income to save on taxes and to save for retirement. In addition, assets in the IRA grow tax free! All this sounds great until you reach age 73 (or 72 in certain circumstances) and required minimum distribution rules kick in forcing you to start withdrawing these assets. The tax man (or woman) then comes calling for his share. The entire amount withdrawn from the IRA will be subject to income tax. That is why, under certain circumstances, an IRA distribution may be the best asset to donate to charity.

If you are over 70 ½ years old, you may contribute up to $100,000 from your IRA to a charity annually (known as a qualified charitable distribution). You do not get a charitable tax deduction for the donation, but the withdrawal is not subject to income taxes and fulfills your required minimum distribution. The entire amount will go to charity.

If you plan on leaving a bequest in your Will to a charity, again, the best asset to leave is your IRA. The assets in your IRA are subject to income taxes (and even estate taxes if applicable) upon your death but leaving the IRA to charity will result in the entire amount going to the charity of your choice. Otherwise, as much as half of the assets may go to the IRS!

So, if you are over 70 ½ or thinking of leaving a bequest in your Will to your favorite charity, think about giving your IRA to the charity. All you need to do is fill out the beneficiary designation forms to save your IRA from the IRS!