by Charles L Stanley CFP® ChFC® AIF®

CharitableGivingWhen entering retirement, having a big, fat IRA feels good. It provides a certain sense of security —and that’s a good thing. However, when you consider estate planning for a family with a taxable estate in excess of $5.25 million, that big, fat IRA is a horrible asset to own. Why? Because at the death of the IRA owner, the IRA will be subject to both income tax and estate tax. Depending on the details of the case, it’s entirely possible to lose 75% or so of the value of the IRA to taxes. So, what should you do to avoid this extreme taxation?

Give it away

Actually the give it away strategy is only fully effective if the owner is already planning to make charitable gifts anyway. It’s just much more efficient to make those gifts directly from the IRA to your chosen charity [501(c)(3) organization]. Making charitable gifts directly from an IRA avoids income tax on the distribution and reduces the taxable estate. This reduces the after-tax cost of the gift by quite a margin.

The caveats

As you might expect, there are a few caveats to using the give it away strategy:

  • This opportunity is only available to IRA owners who are at least 70-1/2 years old when the gift is made. This is a little different than the Required Minimum Distribution that can be made in the year you turn 70-1/2. For the charitable gift, you must already be 70-1/2.
  • These gifts can only be made from a traditional IRA. A charitable gift from your 401(k) plan will not qualify. The same is true of simple IRAs, SEPS, Keoghs, 403(b) plans and profit sharing plans. However, you can do a two-step process by rolling your funds from your plan into a traditional IRA before making the charitable gift from there.
  • The recipient can only be a pubic charity. Donor-advised funds and private foundations do not qualify.
  • No quid pro quo. Your entire gift will be disqualified from the tax-free benefit if you receive anything or are entitled to receive anything (a chicken dinner?) from the charity as a result of your contribution.
  • If you contemplate a charitable gift from your IRA, be sure to consult with your advisor first. There are a few more caveats than what are listed here. You wouldn’t want to make a significant gift (limited to $100,000) and find it doesn’t qualify.

about the author: Charles L. Stanley CFP®, CHFC® & CKA®

CharlesStanley640x640Charles L. Stanley CFP®, CHFC® & AIF® is a CERTIFIED FINANCIAL PLANNER™ professional and a Chartered Financial Consultant, and he holds the Accredited Investment Fiduciary® designation. For more than 20 years, Charles has served retired physicians, business owners, corporate executives, retirees, and widows, helping them with their estate planning, tax strategies, risk management, investment selection, business succession, and retirement planning.

Charles is a co-author of T.A.S.K. – The Trusted Advisors Survival Kit, published by LexisNexis and is the founder and editor of Capital Markets U.com Magazine: Investor Education for Main Street America. He recently published Forewarned is Forearmed: How to Make an Annuity Purchase (or not) You Will Never Regret. Additionally, he has been quoted or published in the Journal of Financial Planning, San Diego Union Tribune, San Diego Daily Transcript, American Funeral Director Magazine, Canadian Funeral Director Magazine, The Bottom Line – Independent Voice for Canada’s Accounting and Financial Professionals, Financial AdvisorPro, The Family Business Advisor, and Christian Businessman Magazine and was a contributing author to How to Manage a Million Dollars or Less. He also hosted Senior Money, a radio talk show heard on KCEO AM 1000 and he has appeared as an expert witness in both NASD arbitration and San Diego Superior Court.

Learn more and/or Contact Charles

Continue Reading

Other articles filed under LA/OC CFP Team Posts

The Intrapreneur’s Wealth-Building Toolkit

July 17, 2019 - That’s not a typo in the headline; this blog is directed toward intrapreneurs — folks who hold manager, VP and director positions at public companies. These ambitious leaders often self-select as, but since they work within large organizations, they have...
Continue Reading

Your Sequential Investing Hierarchy: First Things First

June 12, 2019 - As I’ve noted in a previous blog, I like to break down where money goes into four buckets: Live, Give, Owe and Grow. Today, I’m going to expand on that concept by introducing the five sub-categories to the Grow bucket...
Continue Reading

Start With the End in Mind

May 14, 2019 - The younger you are, the less you’re likely able — or willing — to think about what your retirement might be like. That’s OK, but you probably do know one thing, even if you’re a millennial with years and years...
Continue Reading

Are You Too Paralyzed to Plan?

May 8, 2019 - Analysis paralysis — we’ve all been there at some point. I know I’ve been guilty of it. As a financial advisor, I see it all too often with millennials and Gen Xers when it comes to financial planning. And for...
Continue Reading

Congratulations to John Chapman, WorthPointe’s Newest Partner

April 30, 2019 - John Chapman joined WorthPointe in 2018, to bring our presence to Orange County. Since then, his entrepreneurial drive has helped us expand our reach throughout the region. Initially attracted to our company culture and tailored investment approach, John found a...
Continue Reading

Return to Blog Home