Estate Planning : Naming Fordham Prep as a IRA Beneficiary

When Kevin ’ 67 and Connie Hackett sat down with their lawyer to discuss estate-planning matters with regards to their IRA account , their main goal was to figure out what would be the most tax-efficient way to benefit their heirs , while at the same time benefitting the charitable causes the they support .

“ My lawyer said I should consider naming a non-profit as one of mine and Connie ’ s IRA beneficiaries ,” said Hackett . The answer surprised the Hacketts . “ When I asked why , my lawyer told me that when you name a non-profit as an IRA beneficiary , the money comes right off the top , lowering the tax burden on our other beneficiaries . I was totally unaware this was possible , but the fact that Connie and I can support Fordham Prep and still benefit our family is a win-win scenario .”

Hackett , who was a long-time member the Fordham Prep Board of Trustees and recently inducted into the Fordham Prep Hall of Honor , now wants his fellow Rams to take advantage of the tax break and support Fordham Prep . “ The tax rate for IRA beneficiaries is fairly substantial and would place an unfair burden on them . Naming a non-profit as a beneficiary is not a difficult thing to do and my hope is that people realize that they can make a difference through a simple action ,” says Hackett .

• The taxable portion of the IRA balance ( which is often the entire amount ) is counted again as “ income in respect of a decedent ” ( IRD ) for federal income tax purposes . That means federal income tax will be owed when your estate or your heirs take IRA withdrawals .

• State income tax may be due as well .

After all these taxes have been paid , your heirs may receive only a very small fraction of your IRA money while tax collectors get the lion ’ s share .

A tax-smart solution is to leave some or all of your IRA money to charitable beneficiaries while leaving everything else to your heirs . The net result will be more after-tax cash for them .

By naming one or more tax-exempt charitable organizations as beneficiaries of your IRA , you leave that money to the charities after your death . Under our current federal tax system , that is the only way to leave IRA balances directly to charity . On the other hand , leaving IRA money directly to charities upon your death by designating them as account beneficiaries is tax-efficient . First , an IRA balance left to charity avoids the federal estate tax , since it is removed from your estate for federal estate tax purposes . Second , there ’ s no federal income tax due on the IRA money ( the IRD rules do not apply ). There is no state income tax either . Finally , no income taxes are due when your favorite tax-exempt charities take their withdrawals from the IRAs . So you avoid double or triple taxation in a simple way .

When all is said and done , this strategy allows you to leave more to your favorite charities , more to your loved ones and less to the tax collector . Designating your favorite charity as a beneficiary of your traditional IRA ( and other tax-deferred retirement accounts ) can be a tax-smart maneuver . With advance planning and the federal estate tax exemption , you have more opportunity to minimize both federal and applicable state income and estate taxes .

Note : Neither Fordham Prep nor its employees and related parties provide tax or legal advice . You should consult with your legal counsel and / or your accountant or tax professional regarding the legal or tax implications of a particular suggestion or strategy including any estate planning strategies before you implement . In addition , the information is current as of the date of this publication and is subject to change without notice .

Traditional IRA accounts are taxed three times when a person passes away .

• They are included in your estate for federal estate tax purposes when you die .

Source for parts of this article came from the CPA firm WSRP based in Salt Lake City , Utah . https :// www . wsrp . com / leaving-ira-money-charity-taxsmart-strategy /

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