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Making the Most of Your IRA and Managing 401(k) Drops: A Tax-Savvy Way to Support the Causes You Love

If you’re a nonprofit leader, you’ve likely heard from donors who are uneasy about market fluctuations. And if you’re someone keeping a close eye on your 401(k) or IRA, you may be feeling the same. When markets dip or accounts take a hit, it’s natural to wonder how that affects your long-term financial plans—including the legacy you hope to leave behind.

But here’s a silver lining: now is actually an ideal time to talk about using retirement assets—especially IRAs—as a smart, strategic way to support charitable causes while maximizing what’s left for loved ones. Whether you’re a donor planning your estate or a nonprofit helping supporters think through their giving options, this approach can turn market uncertainty into a long-term win.

Why Retirement Accounts Are Powerful Tools for Giving

Most people don’t realize that IRAs are among the least tax-efficient assets to leave to heirs. When children or other beneficiaries inherit an IRA, they’ll be required to withdraw the entire balance within 10 years due to the SECURE Act. And because those withdrawals are taxed as ordinary income, heirs could face a steep tax bill—especially if the inheritance bumps them into a higher bracket.

But what if those same IRA assets were directed to a charitable organization instead? In that case, the charity receives 100% of the gift—no taxes, no reductions.

Because nonprofits are tax-exempt, they can put the full value of the IRA to work advancing their mission.

For individuals who want to leave a legacy and support a cause they care about, this is an efficient and impactful option.

A Smarter Way to Divide Your Legacy

Let’s say you’re planning to leave both an IRA and some appreciated stock to your children and your favorite nonprofit. Here’s a tax-savvy way to think about how to divide those assets:

• Leave the IRA to the nonprofit. The charity won’t owe taxes on it, maximizing the impact of your gift.
• Leave the appreciated stock to your children. When they inherit it, they’ll receive a “step-up in basis” to the stock’s market value at the time of death. That means if they sell it immediately, they won’t owe capital gains taxes.

This approach ensures that both your heirs and your charitable interests receive more of what you intended.

Let’s Talk About It

If you’re a nonprofit, now is the time to educate your donors about this opportunity. And if you’re someone with an IRA or retirement account, consider how naming a charity as a beneficiary might fit into your legacy goals.

The community foundation is here to help. Whether you’re looking to grow your organization’s endowment or align your estate plan with your values, we’d love to talk through the possibilities.