Elderly couple discussing donating retirement options

Donating an IRA and other retirement assets

Donating an IRA or other retirement assets to charity can be a tax-smart estate planning strategy

It is always possible to donate retirement assets, including IRAs, 401(k)s, and 403(b)s*, by cashing them out, paying the income tax attributable to the distribution, and then contributing the proceeds to charity. In many cases, though, there is little to no tax benefit associated with this type of donation. However, a direct contribution of retirement assets to charity as part of an estate planning strategy can be very tax-efficient. In some situations, it can mean more funds for charities and heirs alike.

 

* Traditional IRAs, 401(k)s, and 403(b)s may contain after-tax contributions that are not subject to income taxes. If they do, there are special tax rules to determine what portion of a withdrawal is attributable to after-tax contributions. This article does not address those rules. Withdrawals from Roth IRAs, Roth 401(k)s and Roth 403(b)s, along with their associated earnings, are generally free from income taxes if certain conditions are met.

Options for donating retirement assets

Donating during your lifetime: In order to donate retirement plan assets during your lifetime, you would need to take a distribution from the retirement account, include the distribution in your income for that year, account for any taxes associated with the distribution, and then contribute cash to the charity—with one exception. People who are age 70 ½ or older can contribute up to $108,000 from their IRA per year directly to a charity and avoid paying income taxes on the distribution. This is known as a qualified charitable distribution. It is limited to IRAs, and there are other exclusions and considerations as well.

Donating as part of an estate plan: By contrast, there can be significant tax advantages to donating retirement assets to charity as part of an estate plan. When done properly, charitable donations of retirement assets can minimize the amount of income taxes imposed on both your individual heirs and your estate.

Tax implications of donating retirement assets during life

Retirement plan benefits are only payable to the employee or account holder who earned them, with a few exceptions for spouses or survivors. With the exception of a qualified charitable distribution as described above, distributions from non-Roth retirement plans are taxable as ordinary income to the person who receives them.

This is true whether the recipient is the original account holder or a beneficiary of the account holder. Unlike other inheritances that can be passed to heirs free of income tax, distributions from inherited retirement plans are taxable as ordinary income to the person who receives them.

Ways you can make a donor-advised fund the beneficiary of a retirement account

Although designating any qualified charity as a beneficiary usually allows an estate to claim a charitable contribution deduction, utilizing a donor-advised fund program—such as the Fidelity Charitable Giving Account—to name a public charity as the beneficiary of a tax-deferred retirement account (such as an IRA or a 401(k)) gives clients and heirs greater flexibility.

Upon death, your IRA assets can fund the donor-advised fund. Donations can then be distributed to charities immediately or over time through an endowed giving program. Or you can let a trusted friend or family member make decisions about donations from your donor-advised fund—a designated account successor can make grant recommendations over time to the charities they would like to support.

Alternatively, you can use your assets to provide multiple heirs with a fund to support their individual charitable giving by specifying that the IRA assets be allocated across multiple donor-advised funds. In this case, each individual will have their own Giving Account, creating a legacy of giving that can stretch far into the future.

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Added benefits of a Giving Account

  • Support charities immediately or over time
  • Support multiple charities with a single contribution
  • Streamline recordkeeping of your donations
  • Consolidate many tax receipts into one

Donations are invested, and investing involves risk. The value of an invested donation will fluctuate over time and may gain or lose money.

Ready to get started?

Start making a difference today by opening a Giving Account—no minimum required.

Frequently asked questions

What are the benefits of donating an IRA to charity upon death?

When you name a charity as a beneficiary to receive your IRA or other retirement assets upon your death, many benefits apply. Neither you and your heirs nor your estate will pay income taxes on the distribution of assets. Your estate will need to include the value of the assets as part of the gross estate but will receive a tax deduction for the charitable contribution, which can be used to offset the estate taxes. The full amount of your retirement account will directly benefit the charity of your choice because charities do not pay income tax. You also have the option of dividing your retirement assets between charities and heirs. Lastly, you can support a cause you care about as part of your legacy. 

How do I designate a charity as the beneficiary of an IRA or a 401(k)? 

When you’re ready, making a charity the beneficiary of your IRA or other retirement assets is typically straightforward: Fill out a designated beneficiary form through your employer or your plan administrator. Most banks and financial services firms also have beneficiary forms, or they can provide you with suggested language for naming beneficiaries to these accounts. Once the designated beneficiary forms are in place, the retirement assets will generally pass directly to your beneficiaries (including charities) without going through probate. If you are married, ask the plan administrator whether your spouse is required to consent. If consent is required but not obtained, this could result in a disqualification of the charity as your beneficiary. Be clear about your wishes with your spouse, lawyer, and any financial advisors, giving a copy of the completed beneficiary forms as necessary.

How can Fidelity Charitable help?

Since 1991, we have been helping donors like you support their favorite charities in smarter ways. We can help you explore the different charitable vehicles available and explain how you can complement and maximize your current giving strategy with a donor-advised fund. Join more than 322,000 donors who choose Fidelity Charitable to make their giving simple and more effective.

What other types of assets can I donate?

Fidelity Charitable accepts a wide range of financial assets, from cash and checks to stocks and even non-publicly traded assets.

The estate planning information provided is general and educational in nature, and should not be construed as legal or tax advice. Fidelity Charitable does not provide legal or tax advice. Content provided relates to taxation at the federal level only. Charitable deductions at the federal level are only available if you itemize deductions. Rules and regulations regarding tax deductions for charitable giving vary at the state level, and laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of the information provided. As a result, Fidelity Charitable cannot guarantee that such information is accurate, complete, or timely. Tax laws and regulations are complex and subject to change, and changes in them may have a material impact on pre- and/or after-tax results. Fidelity Charitable makes no warranties with regard to such information or results obtained by its use. Fidelity Charitable disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation.