By Lauren Denton, Director FORVIS
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As we approach the end of another year, charitable giving may be top of mind for many individuals and families.  In addition to planning for annual charitable gifts, many donors may be contemplating how to include charitable organizations in their estate plan.  Consider how an Individual Retirement Account (IRA) can play a role in annual giving as well as bequests to balance both charitable impact and tax efficiency.

How IRAs can fit into your gifting plan
 QCD
Individuals 70 ½ and above can make an annual gift to a charity through a qualified charitable distribution (QCD) from their individual retirement account.   In a QCD, up to $105,000 of income otherwise taxed as ordinary income can be excluded from taxable income when distributed directly from your account to a qualified charity. The charity must be an Internal Revenue Code (IRC) Sec. 501(c)(3) organization; private foundations, supporting organizations, and donor-advised funds do not qualify.

Donating an IRA as part of estate plan
Designating a charity as a direct beneficiary of an IRA as part of your estate plan is another strategy that can result in a tax benefit.  While many donors may direct gifts to a charitable organization in their will, using an IRA can result in tax advantages to both other heirs and to the charity.  When properly executed, donation of retirement assets can result in lower income taxes for your estate as well as individual heirs.  Consider the following benefits:

• Where traditional IRA assets are distributed to individual heirs, income tax is generally paid based on the heir’s individual income tax bracket; however, distributions of IRA assets are tax-free to a charitable organization.
• Since a charitable organization does not pay income tax, the full amount of the IRA distribution will directly benefit the charity.
• The estate will include the value of IRA assets as part of the gross estate but will receive a charitable contribution tax deduction for the gift.  This can help offset the potential estate tax of the estate

While there are multiple factors to consider as part of an overall giving plan, understanding the potential tax benefits associated with gifting out of an IRA can provide a valuable gifting option both for annual and end of life gifts.  Consider a conversation with your estate planning attorney, financial planner, and tax advisor to see if this strategy will help you achieve your philanthropic goals