Should You Donate an IRA?

IRAs are generally used because of the significant tax benefits they offer investors as they plan for retirement expenses. Nonetheless, they can also be used for other means and still accrue the associated tax savings. For example, some investors choose to use their IRA resources to fund some of their charitable giving. With careful planning, this can be done in a perfectly safe, legal, and tax-beneficial way.

It is important to note that any money withdrawn before the age of 59 1/2 (and not subject to the special exceptions of education, buying a house, and major medical expenses) is subject to a 10% early withdrawal penalty. Besides that limitation, however, there are many different options for using your IRA assets to pursue your charitable and philanthropic goals.

For the years of 2006 and 2007 only, The Pension Protection Act of 2006 allows seniors 70 1/2 or older the opportunity to give up to $100,000 to the charity (or charities) of their choice from the funds they have available in their IRA accounts. The gift is not included in taxable income, however, so it cannot be deducted from your taxes.

In more general terms, funding charitable giving through IRA resources can help avoid significant tax liabilities that an estate is subject to after the death of its owner. Many investors find that a strong market has left them in a position where they will not need all of their IRA and 401(k) or 403(b) plans, leaving them with assets that would normally be taxed at a high percentage by estate and income taxes. By leaving unspent IRA assets to a charity through your will, you can in effect take resources that would be heavily taxed and instead give them to charity tax free.

It doesn't have to be a complicated process to donate your IRA savings to a charitable cause. Many charities understand the giving needs of their donors, and have tax advisors that can help you through the process. Of course any decision should be made with the help of your own tax advisor, but specialists in charitable giving (who will often advise at no charge if they are connected to the charity of your choice) can provide you with options that you might not have thought of.

Your hard-earned IRA savings don't have to be given over to the IRS if you don't use them yourself. If you have a favored charity, you can make good use of any IRA funds you don't use through a tax-free donation.