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Potential benefits of naming a charity as retirement account beneficiary
By Elizabeth Pack on December 27, 2016 at 9:15 AM

One hand giving a red heart to anotherRetirement accounts such as IRAs, 401(k) and 403(b) plans and other qualified plans or profit-sharing plan accounts may provide an opportunity for charitable giving by offering a variety of tax benefits, depending upon the structure.

Generally, retirement assets may cause an estate tax liability for the account owner as well as income tax consequences for the estate of the owner and/or the beneficiary recipients of the account. However, when a charity is designated as the beneficiary of a retirement account, at the death of the owner there is an estate tax deduction for the value of the amount given to charity, and income tax is avoided on the distributions from the retirement account(s) to the charities.

As a result, the charities are able to fully utilize the assets unreduced by income tax or estate tax. In contrast, if the retirement account is left to an individual, the amounts received are reduced by income tax as well as possibly the estate tax. Thus, there is some incentive to name charities as the beneficiaries of retirement accounts and designate family to receive other (non-retirement-related) assets, which would not be subject to income tax when received by the individuals.

If you have questions about possibly leaving retirement account benefits to a charity, please contact a member of our Trusts and Estates Department.

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