Retirement assets are ideal for charitable bequests because they can be among the most highly taxed assets in your estate. Your heirs (other than your spouse) may have to pay income tax on the amount they receive and, depending on the size of your total estate, those assets may also be subject to estate tax.
Additionally, recent changes to tax laws eliminated the “stretch IRA” option, requiring a non-spouse beneficiary to liquidate the entire balance of a retirement account balance within 10 years, rather than spreading it over the lifetime of the beneficiary. Financial planning professionals project that this change could result in about one-third of an inherited IRA’s balance being paid in tax to the Internal Revenue Service (IRS).
Here’s a tip: Leaving other assets to your loved ones and designating your retirement assets for a qualified charity, such as Drexel University or Drexel University College of Medicine, offers two distinct advantages:
- Increasing the impact of your bequest. As a qualified charity, Drexel will not pay income taxes on your donation when it receives assets from your retirement account.
- Decreasing the estate tax burden for your family. Your assets will pass directly to Drexel, so your estate will be eligible for a federal estate tax charitable deduction on the full value of the donated amount.
As always, remember to keep your retirement account beneficiary designations up to date to ensure that your assets are distributed exactly as you intend.
Questions? To explore ways to maximize your tax benefits and the impact of your charitable contributions, contact David Toll, JD, senior associate vice president for gift planning, at 215.895.1882, or email giftplanning@drexel.edu.