Naming Plan as a Beneficiary on Your Retirement Account

By Jennifer Winnett Denniston
April 9, 2018

Your retirement account is a great way to make a lasting impact on children’s lives with Plan International USA. Recently, I posted about giving a charitable contribution through your IRA. Another opportunity for giving through your retirement account is to name Plan as the beneficiary of your account.

In order to make this gift, you simply need to obtain a Change of Beneficiary Form from your IRA or retirement plan administrator and list Plan’s name as a beneficiary of your account. When you do this, you maintain control of your account during your lifetime and can use the funds however you wish. When you later pass away, your remaining account balance, or a portion of it, will be sent to Plan according to your instructions.  

This gift does not create a tax deduction for you during your lifetime, but it does create a tax benefit for some important people later—your heirs.

Consider this example: Deborah has $200. She would like to leave $100 to Plan and $100 to her son.  She writes her will and instructs her personal representative to give the $100 from her savings account to Plan. She lists her son as the beneficiary of her $100 IRA. When she later dies, Plan receives all $100 from her savings account and pays no income taxes because Plan is a tax-exempt organization, and because inherited funds are not taxed as income for federal income tax purposes.

Her son receives the $100 IRA. IRA assets are taxable as income when they are withdrawn from the account, so when Deborah’s son decides to take the $100 out to spend it, he discovers that he owes about $20 in taxes, leaving only $80 for him to enjoy.  

Meanwhile, Fran also wishes to leave $200. She decides to do the opposite of Deborah: she leaves her son the $100 savings account through her will and lists Plan as the beneficiary of her $100 IRA. When Fran later dies, Plan inherits her $100 IRA account. Again, Plan pays no taxes as a tax-exempt organization, so all $100 of Fran’s dollars go to work transforming the lives of children. At the same time, her son inherits the $100 savings account and pays no income taxes because inherited funds are not taxed as income for federal income tax purposes. No tax is paid on either inheritance, and all of Fran’s money goes exactly where she wanted.

Using your retirement account to make a gift to Plan is a way to minimize the amount of taxes your heirs pay later, leaving them the maximum flexibility to use their inheritance in the best way possible.  

Would you like to learn more about maximizing your retirement accounts to make your charitable gifts possible? The team of planned giving professionals at Plan is here to help you. Contact us here. Please consult your tax adviser to determine the appropriateness of any charitable gift.