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PARTNER INSIGHTS: Using Retirement Assets for Charitable Giving

Updated: Feb 6, 2023

For many people, retirement accounts are the most significant source of accumulated assets throughout their lifetime. These accounts also provide a simple and tax-friendly way to support the charitable causes that matter to them. From a non-profit organization’s perspective, people with IRAs represent a tremendous opportunity to increase fundraising. Let’s take a closer look at using retirement assets for charitable giving and why it’s something that can benefit everyone involved.

What type of accounts qualify?

Any assets from within an individual retirement account (IRA) can be donated to charity.

Why donate from an IRA?

There are a number of tax benefits to using retirement assets as a source for charitable giving. Under normal circumstances, a distribution from a traditional IRA would incur taxes because the account holder didn’t pay taxes on the money before it was invested. Furthermore, when an IRA owner turns age 70 ½, they are required to take a distribution from their account and pay the associated taxes. However, individuals can avoid paying taxes on those distributions by donating them directly to a qualified charity of their choice, up to $100,000.

Not only is a charitable gift from a retirement account not considered a taxable distribution, but it also effectively lowers the account holder’s adjusted gross income. Additionally, taxpayers whose annual income impacts their Medicare premiums may find that donations from their IRA can help lower the out-of-pocket cost of their premiums. To take advantage of these benefits, donors should speak with a tax advisor to ensure their donation follows the IRS rules for qualified charitable distributions (QCDs).

Why should nonprofits target these donors?

The base standard tax deduction for 2021 is $12,550 for individuals or married individuals who file separately, $18,800 for heads of household, and $25,100 for couples who file jointly. But when donating from an IRA, the IRS provides tax immunity for donations of up to $100,000. For someone who feels very strongly about a particular cause, this could be an attractive option and one which would help them support their favorite charity while also lowering their tax obligation. It is also a potentially lucrative opportunity for non-profits to secure additional fundraising gifts from those who qualify for this provision.

Identifying philanthropists with IRAs

Recognizing the potential value of retirement asset donations and figuring out who to target are two entirely different things. That’s where technology can become an absolute game-changer. Data analytics can help non-profit organizations quickly and easily identify qualified individuals most likely to have IRAs, so they can determine who best to focus on and adjust their marketing accordingly.

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The Strategic Partner Network is a curated collection of vendors and specialists who share our values and mission to create change and develop growth. PARTNER INSIGHTS allows for members of our Strategic Partner Network to share innovative concepts and strategies to support nonprofits and social impact organizations. Be on the lookout for future PARTNER INSIGHTS featured on Lipton Strategies blog.

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