Presented by Alvin H. Blitz, Esq., Chief Gift Planning Officer, Masonic Charities
Why Designate Your IRA to Charity?
A Traditional IRA is fully taxable at ordinary income tax rates to any beneficiary that receives a distribution from it, even your heirs
Ordinary income tax rates can run as high as 37%
An IRA left to anyone other than a spouse must be paid out within 10 years of the death of the Account Owner
A capital asset such as real estate, stock, or bond that appreciates in value over time is taxed at capital gains rates, when sold
Capital gain tax rates generally cap at 15% but can run as high as 20%
Why Give Your IRA to Charity?
Distributions from an IRA to Charity from a decedent’s IRA are not taxable while such distributions are fully taxable to your heirs
The sale of a capital asset at the death of the owner receives a step-up in basis and is received or sold based on the date of death value of the decedent thereby avoiding all predeath capital gain taxes
For a charitably-inclined person, the gift of the IRA to charity and the capital asset to the heirs is the most tax efficient way of distributing your estate since income and capital gain taxes are avoided
Unlike IRAs, capital assets are not subject to the 10-year distribution rule for inherited IRAs and can be held indefinitely
Let’s See How it Works
*Bill’s stock would be subject to PA Inheritance tax at 4.5% and for large estates possibly federal estate tax
What if We Distributed the Assets the Other Way?
Not All Assets are Alike
When doing estate planning with your IRA see a financial advisor or estate planner to make sure you use the most tax efficient way to distribute your estate
Other nontax reasons may impact your decision such as heirs that cannot manage assets
Be aware that there are many tax buckets that can affect which is the best asset to give to charity and which to your heirs (i.e. federal income, capital gain and estate taxes; PA income and inheritance taxes)
Consider a trust or charitable remainder trust to protect assets at death
Neither Masonic Villages of the Grand Lodge of Pennsylvania nor Alvin H. Blitz, Esq. provide legal, financial, or tax advice. None of the information in The Blitz should be deemed legal, financial, or tax advice or acted upon by any person without prior consultation with appropriate professional advisors.