Charitable Retirement Planning – You can achieve a fulfilling retirement and a lasting legacy through charitable strategies within your overall Financial Plan.
My colleague, Candace Lee, recently wrote about some of the ways that you can incorporate charitable contributions into your Financial Plan. I am going to focus on another aspect of charitable gifting: using your IRA Assets.
Let me start by saying that providing yourself, your spouse and your dependents with a comfortable retirement needs to be your number one priority. Once you have determined that your spouse and dependents are provided for, you can consider these charitable strategies.
Some of you may remember when the IRS allowed IRA owners over the age of 70 ½ to use their RMD (Required Mandatory Distribution) as a charitable donation. The distribution counted as part (or all) of the RMD to satisfy the IRS requirement, but the portion that was donated to qualified Charities was not taxed. Unfortunately, the IRS has not yet announced that option would be available for 2012. But there are other ways to target IRA Assets for charity and to avoid paying taxes on those gifts. When you die with retirement plan assets in your estate, those assets are subject to income taxes. This can reduce the amount of money that would pass to your heirs by as much as 35 percent. These are income taxes, not estate taxes. Almost everyone, except those in a 0% tax bracket, has to pay income tax on retirement plan distributions.
There are many ways to designate your IRA Beneficiary, from the simple to the complex, to protect your heirs from heavy taxes and create a lasting legacy.
Designate a charity as the primary Beneficiary of your retirement plan assets (from 1 to 100%).
Make your favorite charity the contingent beneficiary of your IRA. The contingent beneficiary will receive the balance of your retirement plan only if your loved ones, as your primary beneficiaries, do not survive you.
A more complex option requires the services of an Attorney to create a Charitable Remainder Trust, which you can name as your beneficiary. Your spouse or other dependents would receive income from the Trust for life or for a term of years. Upon the termination of the trust, the balance would go to the charity.
It is important that you seek professional guidance before making any decision to leave retirement assets to charity. Please contact your Financial Strategist if this is something you would like to learn more about.
Another important item to consider is the Charity that you name as your beneficiary. Since it might be many, many years before the Charity receives the funds, you want to make sure the organization that you name is a viable organization. You might consider leaving money to your college, church, hospital, or other well known, well established Charitable organization. And don’t forget to let the organization know that you have them in your estate plan. They will be happy to know and will probably honor you as one of their donors during your lifetime.