Using IRA as A Major Gift and Planned Giving Tool

Using IRA as A Major Gift and Planned Giving Tool

Article posted in Retirement Plans on 22 March 2016| comments
audience: National Publication, Rick Pendykoski | last updated: 23 March 2016


New author, Rick Pendykoski, examines the various gift opportunities with individual retirement accounts.

By: Rick Pendykoski

IRA stands for Individual Retirement Account, and it is a savings account that allows you to save money for your retirement in a tax-advantaged way. It is a financial tool that you should consider for saving for your retirement with a tax-free growth or on a tax-deferred basis. There are three main types of IRAs, each with their own set of advantages: Traditional IRA, Roth IRA and Rollover IRA.

Most people consider IRA as just an investment, but it is more than that. You can keep your stocks, mutual funds, bonds and other assets in them and enjoy the benefits gained from them. IRAs can also be used as a charitable tool to start a legacy with your favorite charity. They can be used as a major gift tool as well as a planned giving tool. How can that be done? Read on. 

How Can IRA Be a Major Gift Tool

IRA donors that are over 70½ years of age have to take a part of distribution from their IRA every year. This is called Required Minimum Distribution or an RMD, which are necessary to take. You will get taxed on these distributions as income. In the last few years, Congress passed a law that allows all the IRA holders to direct the RMDs to a charity they support. By doing this, they can avoid income tax.

However, they cannot double-dip and get a tax deduction for the gift. The amount that comprises of each distribution merely gets deducted from their total income for tax purposes. There are many donors who do not count on their RMDs for their annual household budget. For them, IRA can be a good medium for making a major gift to their favorite charity.

Using IRA as A Planned Giving Tool 

Instead of the usual options, donors can use their IRA as a planned giving tool. For doing so, they have to name a beneficiary for their IRA, just like that in life insurance. In most cases, beneficiaries or heirs are the donor’s spouse, children or grandchildren. Based on how much portion they inherit, they can decide on how many RMDs they want to take and pay taxes accordingly. This decision will vary from one heir to the next.

However, there is another solution that donors can opt for. Since life insurance is not considered a taxable exposure to beneficiaries, the donor can leave his/her life insurance for the surviving spouse and children for their benefit. This way they will avoid a tax event on the IRA. By naming a charity as a beneficiary of the IRA, their estate and heirs could benefit from life insurance provisions. Moreover, the estate and heirs could bypass the tax concerns with inheriting an IRA.

How To Do This

If you are a charity, talk with your donors who are over 70½ years old and understand what they are passionate about. Assess if your organization’s vision aligns with the donor’s passion, and how both of you can join hands to start a lasting legacy. Ask if they have considered using their IRA as a charitable tool, and present an opportunity for them if they haven’t. Let them know that they can make a gift that meets their passion while providing benefits to their estate.

Consult with your organization’s accountant and financial advisor to better understand the opportunities present for you and your donors. They will help with comprehending your approach to your donors and how to come out with positive results.

At the end of the day, it is all about giving back to the society - regardless of which IRA you choose and how you use it. Leaving behind a legacy through charitable gifts will impact more lives that you can think. It’s definitely a noble cause, and it won’t hurt to collect a few good karma points!

Author Bio:

Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He regularly writes for blogs at MoneyForLunch, Biggerpocket, SocialMediaToday, NuWireInvestor & his own blog for Self Directed Retirement Plans. If you need help and guidance with traditional or alternative investments, email him at or visit

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