Individual Retirement Accounts

Is there such a thing as a bad asset to leave to your heirs?  From a tax perspective, the answer is yes!  An Individual Retirement Account (IRA) can be such an asset.

An IRA is created with before-tax dollars and grows in value without being taxed.  The IRA is paid on death as you have directed in your beneficiary designation.  However, the IRA proceeds received by your beneficiary must be reported as ordinary income and, because the beneficiary will receive the entire amount in a lump sum, the entire account will be considered ordinary income for that year.  The IRA proceeds may put your heirs into a higher income tax bracket, and the higher the income tax bracket of the IRA beneficiary the greater the income tax paid on the appreciation in the IRA.  Close to 40% of the IRA could be lost to your heirs in income taxes.

To avoid this, consider naming Community Family Life Services as the beneficiary of your IRA.  Community Family Life Services does not have to pay taxes, so it will receive the full benefit of the gift.  Your heirs can then receive assets from your estate upon which they pay no income taxes (and perhaps no estate taxes).  And the gift to Community Family Life Services would lower any estate taxes that might be due by means of a charitable deduction.

To further learn how a gift to CFLS can help your family, contact our development staff at (202) 347-0511, extension 405 or e-mail development@cflsdc.org.  You can also learn more about planned giving ideas by visiting the Lutheran Planned Giving Consortium web site.