Taxes
Why Your IRA May Be the Best Thing to Leave to Charity
Heirs pay income tax on inherited traditional IRAs and 401(k)s, usually within 10 years. Charities pay none. How to name a charity as your IRA beneficiary, with an example.
Short answer
Money in a traditional IRA or 401(k) hasn't been taxed yet, so heirs owe income tax as they withdraw it, usually within 10 years under the SECURE Act. A charity named as beneficiary pays no income tax, and the gift is also deductible for estate tax. Leaving retirement accounts to charity and other assets to family can leave more for everyone.
Why are inherited IRAs taxed?
Contributions to a traditional IRA or 401(k) went in before tax, so the money is taxed when it comes out, including after you die. The law calls this "income in respect of a decedent," and it's taxed to whoever receives it (26 U.S.C. §691).
Since the SECURE Act, most beneficiaries other than a spouse must withdraw everything within 10 years. The exceptions include a spouse, your own minor child (until age 21), a disabled or chronically ill person, and anyone not more than 10 years younger than you (Congressional Research Service). Final IRS rules issued in 2024 add a catch: if you had already started required withdrawals, your heirs must take withdrawals every year, not just empty the account by year 10. Penalties for missing them apply from 2025 (EY, IRS Notice 2024-35).
These accounts hold a lot of money: $19.9 trillion in IRAs and $15.0 trillion in workplace plans such as 401(k)s, as of mid-2026 (ICI).
Why don't charities pay that tax?
Qualified charities are exempt from income tax, so retirement money that goes to one arrives whole. The IRS has confirmed in private rulings that when a charity is the IRA beneficiary, only the charity includes that income (IRS PLR 200633009). The gift is also deductible for estate tax (26 U.S.C. §2055).
How much could the swap save?
An illustration. Suppose you have $400,000 in a traditional IRA and $400,000 in a taxable brokerage account. You want half to go to your daughter and half to charity.
| Plan | What your daughter keeps | What charity receives |
|---|---|---|
| Split each account in half | $200,000 brokerage, plus $200,000 of IRA withdrawals, taxed as income. At a 30% combined federal and state rate, about $140,000 after tax: roughly $340,000 in all | $400,000 |
| IRA to charity, brokerage to your daughter | $400,000 of brokerage assets, which generally get a stepped-up tax basis at death, so little or no tax | $400,000 |
Same charitable gift, about $60,000 more for your daughter. Your numbers depend on your heirs' tax brackets and state. This is an illustration, not tax advice.
How do you name a charity as your IRA beneficiary?
- Ask for the beneficiary form. Most IRA custodians have it online. For a 401(k), ask the plan administrator.
- List the charity's full legal name, address and federal tax ID (EIN). You can find the EIN with the IRS Tax Exempt Organization Search.
- Set percentages. You can leave part to charity and part to people, such as 25% to a charity and 75% split among your children.
- Name contingent beneficiaries. They inherit if a primary beneficiary can't.
- Keep the confirmation with your estate papers, and tell your executor.
If you're married, federal law usually requires your spouse's written consent before you name anyone else as the main beneficiary of a 401(k). Rules for IRAs vary in community property states.
What about a Roth IRA?
Roth withdrawals are generally tax-free for heirs, so a Roth is a good asset to leave to people. Traditional accounts are the better candidates for charity.
Can you give from your IRA while you're alive?
Yes, if you're 70½ or older. A qualified charitable distribution sends money directly from your IRA to a charity. In 2026 you can give up to $111,000 this way. It counts toward your required minimum distribution and isn't taxed as income (Congressional Research Service). Lifetime QCDs can't go to a donor-advised fund.
What mistakes should you avoid?
- Naming your estate as beneficiary. The account then goes through probate, and heirs may lose time to spread out the tax.
- Forgetting old forms. Beneficiary designations override your will. An ex-spouse on an old form can still inherit in some cases.
- Using a charity's informal name. Use its full legal name and EIN.
Frequently asked questions
Is it better to leave my IRA or my house to charity?
Usually the traditional IRA. A house or brokerage account generally gets a stepped-up basis for heirs, so they owe little capital gains tax, while an IRA carries income tax for every heir except a charity.
Can I leave just part of my IRA to charity?
Yes. Beneficiary forms let you split an account by percentage among people and charities.
Can I name a donor-advised fund or my own named fund as IRA beneficiary?
Yes. A donor-advised fund sponsor is a public charity and can be named as beneficiary at your death. The restriction on donor-advised funds applies only to qualified charitable distributions made during your life.
Do I need to change my will to leave my IRA to charity?
No. Retirement accounts pass by beneficiary form, not by your will.
Sources
- 26 U.S.C. §691, "Recipients of income in respect of decedents"
- Congressional Research Service, "Retirement provisions in the SECURE Act" (2020)
- EY Tax News, "IRS issues final required minimum distribution regulations" (July 2024)
- IRS Notice 2024-35
- IRS Private Letter Ruling 200633009 (2006)
- Investment Company Institute, "Quarterly Retirement Market Data, Second Quarter 2026"
- Congressional Research Service, "Qualified Charitable Distributions" (January 2026)
- 26 U.S.C. §2055
This article is general information, not legal, tax or financial advice. Laws vary by state and change over time. Talk with a licensed professional about your situation. First published October 24, 2026.