3 tax reform charitable giving strategies: charitable gifts of IRA assets
Tax incentives for philanthropic gifts to charity may have decreased under the Tax Cuts and Jobs Act of 2017, but creative donors are still finding ways to maximize tax savings while supporting charitable causes.
Our Blueprints blog three-part series — “3 tax reform charitable giving strategies” — highlights philanthropic options in light of the latest tax reform legislation. The first tax-saving charitable giving strategy featured the concept of bunching gifts, which may help donors who will not itemize deductions due to changes in the tax code. The second giving strategy explored donations of appreciated assets and highlighted how these gifts may result in two tax benefits rather than one.
This final post will address how charitable gifts of individual retirement account (IRA) assets offer some special tax advantages. With the changes in the tax law, these advantages are even greater for some donors who use this planned giving opportunity.
Say “H.E.L.L.O.” to charitable gifts of IRA assets
Follow along this H.E.L.L.O. acronym to learn why a gift of IRA assets is a smart charitable giving option.
- Highest taxed asset that donors own. Your heirs will pay income tax on any IRA assets they inherit. Qualified public charities are tax-exempt and would receive the full value of your gift.
- Easy to transfer. IRA assets are one of the easiest non-cash assets to donate. Our team of charitable planning experts can guide you through the process.
- Liquid asset. IRA assets are essentially liquid cash assets and can be put to use by the charity almost immediately.
- Large value. Today, the largest asset many people own may be their IRA or other type of qualified retirement account, which allows for making a larger gift than you thought possible.
- Owned by many. Most people today have a qualified retirement account, making it a common asset that can be donated to charity in a tax-efficient way.
Two options for charitable gifts of IRA assets
Donate during your lifetime with a charitable IRA rollover.
The charitable IRA rollover provision allows IRA owners age 70 ½ or older to make a direct, tax-free transfer of up to $100,000 a year from their individual retirement account to a qualified public charity like Duke University. The gift, which goes directly to the charity, counts toward the donor’s required minimum distribution for the year. This means that although the donor will not receive a charitable deduction for the rollover, she will avoid additional taxable income.
The rollover eliminates issues related to carryover of existing charitable deductions, results in no self-employment or Social Security taxes and, in most cases, no state income tax is applicable to the rollover. This may ultimately result in an effective deduction without itemizing — something many retired individuals may find appealing in light of the new, higher standard deduction amounts.
Donate as part of your estate plan with a retirement beneficiary designation.
An estate gift from an IRA may be a more appropriate option for donors who do not have sufficient assets to comfortably consider a lifetime charitable IRA rollover. This can be done by naming a qualified public charity (like Duke) as the beneficiary of your retirement account. By giving a charitable gift from your retirement plan, you ensure that the charity will receive the full value of your gift.
For example: if your family inherits your retirement accounts, they could be subject to estate and income taxes. Therefore, your family would not receive the full value of your IRA assets.
Alternatively, no estate or income taxes are due when you name a qualified public charity as the beneficiary of your retirement account.
For example: if you name Duke as the remainder beneficiary of your retirement account, Duke – a qualified 501(c)(3) public charity – would receive the full value of your gift.
Thank you for following our three-part tax reform charitable giving strategies series. Duke University’s Office of Gift Planning encourages you to consult your financial advisor as you explore your charitable giving options to determine which strategy is most beneficial to you. Please contact a member of our team if we can be of assistance.