Your Retirement Plan Can Expand Your Commitment to Charitable Giving


Back in the spring, I covered the importance of beneficiary designation here. Naming a beneficiary for your traditional IRA or employer-sponsored retirement plan may be one of the most important financial decisions you ever make. The beneficiary (or beneficiaries) you name will receive the funds remaining in your IRA or plan after you die, so you should certainly consider your loved ones' future needs. However, choosing the right beneficiary is often more complicated than that. Your choice could have an impact in one or more of the following areas:

  • The size of the annual required minimum distributions (RMDs) that you must take from the IRA or plan during your lifetime.

  • The rate at which the funds must be distributed from the IRA or plan after your death.

  • The combined federal estate tax liability of you and your spouse (assuming you are married and expect estate tax to be an issue for one or both of you).

You Can Designate a Charity
Your first thought may be to designate your spouse, child, grandchild, or other loved one as beneficiary of your IRA or retirement plan. Naming one or more of these individuals is common and often makes sense for a number of reasons. However, your beneficiary choices are not limited to individual people. Another option may be to designate one or more charities as beneficiary of your IRA or retirement plan (i.e. Alliance church, camp, college, retirement center and/or ministries like ADF and Orchard). Naming a charity can allow you to provide for an organization you believe in, and it can also result in significant income tax and estate planning benefits.*

A few advantages of naming a charity as beneficiary are:

  • A charity will not pay income tax on post-death distributions.

  • Naming a charity can reduce estate taxes.

  • Providing for a charity can have an eternal impact through faithful stewardship of what God has entrusted to us.

When you die, if you name a charity as sole beneficiary of your IRA or retirement plan, your family members and other loved ones will not receive any benefit from those retirement assets. However, if you would like to leave some of your assets to your loved ones and some assets to charity, consider leaving your retirement funds to charity and other assets to your loved ones. This may offer the most tax-efficient solution, since the charity will not have to pay any tax on the retirement funds. As stewards in God’s Kingdom, we should take advantage of tax incentives available to us in order to harness as much as possible for the Lord’s work and our families. If the retirement funds are a major portion of your assets, you might consider leaving those funds to a charitable remainder trust. Under this type of trust, the trust receives the funds free from income tax at your death, then pays a lifetime income to individuals of your choice. When those individuals die, the remaining trust assets pass to the charity. Finally, as discussed above, another option is to name the charity and one or more individuals as co-beneficiaries.

*Note: This discussion applies only to traditional IRAs and employer-sponsored retirement plans. Choosing a beneficiary for a Roth IRA involves different considerations. The calculation of RMDs is complex, as are the related tax and estate planning issues. For more information, consult your trusted advisor or tax professional.

Asset-Based Giving
This quarter, Joseph Padilla with the Orchard Foundation highlights another supercharged stewardship option through asset-based giving.

What is Asset-Based Giving and What Does it Mean to Have an Asset-Based Giving Approach?

By Joseph Padilla, The Orchard Foundation

Did you know that 91% of a person’s wealth is NOT in cash? However, when Christians give to their church or other ministries they care about, most of them simply write a check. But, this is not always the best plan of stewardship. Cash gifts are the most common type of giving, but there are other giving opportunities that allow us to make a greater Kingdom impact and receive more favorable tax benefits.

Non-cash assets
If you’re thinking of selling appreciated stock, appreciated real estate, or a business, these are all forms of asset-based giving. Cash is usually the smallest portion of a family’s wealth. It’s often possible to receive greater tax benefits by giving assets such as:

  • Real Estate

  • Life Insurance

  • IRA Funds (discussed previously)

  • Public Stock

  • Private Stock

  • Proceeds from the sale of a business

These types of gifts typically require some planning ahead of time to ensure full tax benefits. This might include reduced or eliminated taxes if you include charitable giving as part of the strategy.   

An effective, asset-based giving strategy can release tax dollars you would pay on the sale of the asset and pass those dollars to ministry. Those gifts could be more significant than you thought possible, multiplying your impact for God’s kingdom.

The estate planning strategies discussed here are sophisticated and involve multiple considerations. Talk to our Estate Planning Consultants here.

Rob Pease