Charity as Beneficiary of Traditional IRA or Retirement Plan

Naming a beneficiary for your traditional IRA or employer-sponsored retirement plan may be one of the most important financial decisions you ever make. The beneficiary (or beneficiaries) you name will receive the funds remaining in your IRA or plan after you die, so you should certainly consider your loved ones' future needs. However, choosing the right beneficiary is often more complicated than that. Your choice could have an impact in one or more of the following areas:

  • The size of the annual required minimum distributions (RMDs) that you must take from the IRA or plan during your lifetime

  • The rate at which the funds must be distributed from the IRA or plan after your death

  • The combined federal estate tax liability of you and your spouse (assuming you are married and expect estate tax to be an issue for one or both of you)

Your first thought may be to designate your spouse, child, grandchild, or other loved one as beneficiary of your IRA or retirement plan. Naming one or more of these individuals is common, and often makes sense for a number of reasons. However, your beneficiary choices are not limited to individual people. Another option may be to designate one or more charities as beneficiary of your IRA or retirement plan. Naming a charity can allow you to provide for an organization you believe in, and it can also result in significant income tax and estate planning benefits

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