Tips From the Experts
The following is one in a series of periodic articles by local experts with timely tips and information about philanthropic giving and how you can benefit.
Save Taxes With Charitable Giving From Your IRA - Now or Later.
People who are charitably inclined should consider their options in using IRA accounts as part of their philanthropic giving strategy. In 2013, there are opportunities for those who are over age 70½ to forgo taxation on some or all of their IRA distribution. Another opportunity exists when naming a charity as a beneficiary of your IRA. Both strategies can save taxes but in different ways - during your lifetime or upon your passing.
The first strategy is available through December 31, 2013. A Qualified Charitable Distribution (QCD) from a traditional IRA can save income taxes for those calculations dependent on Adjusted Gross Income: Social Security, itemized deductions, credits, income tax brackets. Careful tax planning is recommended to determine the full benefits of this strategy. Visit the Good Shepherd website or the IRS website for more information on charitable IRA distributions.
The second strategy provides significant benefits if your original intent was to make a specific dollar bequest to charity while leaving your IRA to heirs. Charities do not pay income tax, so leaving the cash to heirs and the IRA to charity will reduce income taxes and the estate receives a charitable deduction. You may designate both individual and charitable beneficiaries on one IRA or separate IRAs. Remember that you can name a charity as a contingent beneficiary as well. In the event your primary beneficiary predeceases, the contingent beneficiary is already in place. Coordinated planning between your advisors and the charity is a must. Consult your attorney and financial advisors.
By Laurie Siebert, CPA, CFP®, AEP® and Vice President at Valley National Financial Advisors
Beneficiary Designations Trump A Will
When people think of “estate planning” they often associate it with writing a will. Having a will is an integral part of a good estate plan, but there are other important documents to also consider. Often overlooked is the beneficiary designation form for life insurance policies and retirement plans. Reviewing these documents regularly and keeping the information consistent with your overall plan is just as important as revising your will when there is a change in your life or family. This is especially true if the majority of your investments are in a retirement plan (such as a 401(k), IRA or pension), or you intend to leave an inheritance with life insurance.
Life insurance proceeds are distributed according to the beneficiaries you listed when you purchased the policy. Retirement plan funds are distributed according to the beneficiaries you listed when you enrolled or opened the account. Your will does not control these distributions. If your life insurance policies and retirement plans began many years ago, the beneficiaries you named at the time may not reflect your current wishes or could be inconsistent with your will or trust. If most of your assets are held in retirement plans, or if you own a life insurance policy, the majority of your estate might not be distributed to people and organizations you care about the most.
The next time you review your will, verify the beneficiaries named on each of your life insurance policies and retirement plans. To change a beneficiary, request a change of beneficiary form from your plan administrator or life insurance agent. These forms are sometimes available online. Prior to submitting the completed form, review the information with your attorney, especially if you plan to make any changes. Make it a practice to review your life insurance policies and retirement plans as part of your overall estate plan. Do it each time you revise your will or trust.
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This information was compiled by staff in Good Shepherd's Development Department with the assistance of R. Nicholas Nanovic, Esq. of Norris, McLaughlin & Marcus, P.A. It is not intended as tax, legal, financial, or other professional advice.