Naming a Charity as Your IRA Beneficiary
If you intend to leave something to charity and you also hold a traditional IRA, there is a free improvement available. Your heirs pay ordinary income tax on every dollar they take out of that IRA. A charity pays nothing. Directing the IRA to the charity and other assets to the heirs leaves everyone better off, and it takes one beneficiary form.
- No tax to the charity:: A tax-exempt organisation receives IRA money without income tax.
- Full tax to heirs:: Individual beneficiaries pay ordinary income tax on distributions, generally within ten years.
- Taxable assets are the opposite:: A brokerage account receives a step-up in basis at death, so heirs inherit the gain untaxed.
- Done on a form:: The beneficiary designation on the account controls, not the will.
Where the AI summary above gets this wrong
"Leave your assets equally to your beneficiaries and to charity."
That's surface-true. Here's what it misses:
- Equal shares are not equal after tax — Splitting an estate evenly across account types gives everyone a proportion of the tax burden, including a charity that would not have paid any. Directing whole accounts rather than percentages — the IRA to charity, the brokerage to heirs — changes nothing about the amounts you intended and improves what the family keeps.
- The will does not control the IRA — A retirement account passes by beneficiary designation, not by will. A will leaving a share to charity does not reach an IRA whose form names the children. The change has to be made on the custodian's form, which is where it is most often left undone.
- Splitting an IRA between charity and individuals needs care — Where one IRA names both a charity and individuals, the charity's presence can complicate the distribution rules for the individual beneficiaries. Separating the accounts, or having the charity's share distributed promptly, avoids the problem — and this is one to raise with a professional rather than solve on a form.
01 Why the IRA is the account to give
A traditional IRA holds money on which income tax has never been paid. Whoever takes it out pays that tax. An individual beneficiary pays at their own marginal rate, generally emptying the account within ten years, which frequently pushes them into higher brackets during their own peak earning years.
A tax-exempt charity pays nothing at all. The full balance goes to work, and the deferred tax that has been sitting inside the account for decades is simply never collected.
The mirror image is the taxable brokerage account. It receives a step-up in basis at death, so heirs can sell immediately with little or no capital gains tax — which makes it the best account for them and, for a charity that pays no tax either way, no better than any other. The lifetime charitable route from an IRA works on the same logic.
Shows: the income tax your heirs would pay on a traditional IRA they inherit, which is avoided entirely if the charity receives that account and the heirs receive the taxable account instead. Ignores: the step-up in basis the taxable account carries, state tax, the ten-year distribution timing, and any estate tax.
Source: Publication 590-B
02 How to do it
The change is made on the beneficiary designation form held by the IRA custodian. The will has no authority over a retirement account with a valid designation, which is why an estate plan updated by a solicitor can leave the actual outcome unchanged.
Name the organisation precisely — legal name and taxpayer identification number where the form allows — because a charity's trading name frequently differs from its registered one. Confirm its tax-exempt status rather than assuming it.
Where several charities and several individuals are involved, the cleanest structure is usually separate accounts: one IRA naming the charities, others naming the individuals. That avoids the complications of a mixed designation and makes the distribution administration straightforward for everyone.
Source: Charitable organizations
03 Where a lifetime gift is better
Leaving an IRA at death gives no income tax deduction, because there is no income to deduct against. It simply avoids the tax the heirs would have paid. That is a large benefit, and it is not the same as a deduction.
From 70½, a qualified charitable distribution during life is frequently better than waiting. It removes income from the return in the year it is made, satisfies part of the required distribution, and works whether or not you itemise. Someone giving regularly should be doing that already, and using the beneficiary designation for what is left.
Below that age, an outright gift of appreciated shares from a taxable account is the efficient lifetime route, because it deducts at market value and avoids the capital gain. The IRA then stays where it is, earmarked for the charity at death.
Source: Publication 526
This is the closest thing to a free lunch in estate planning, and it is missed constantly because the will and the beneficiary forms are prepared by different people at different times. If you are leaving anything to charity, leave it out of the IRA and put the charity on the IRA form instead. Same intentions, same amounts, and your children keep a third more of what you left them. It costs one phone call to the custodian.
FAQ
Does a charity pay tax on an IRA it inherits?
No. A tax-exempt organisation receives the account without income tax, so the entire balance goes to the charitable purpose rather than a portion going to the IRS.
Can my will leave my IRA to charity?
Generally not. A retirement account passes by beneficiary designation, which overrides the will. The change has to be made on the custodian's beneficiary form.
Should I split my IRA between charity and my children?
It is usually cleaner to use separate accounts. A single IRA naming both can complicate the distribution rules for the individual beneficiaries, and separating them removes the issue.
Sources
Regulator references
- Publication 590-B · Internal Revenue Service · 2026How inherited IRA distributions are taxed and which beneficiaries face which deadlines.Last verified: 2026-09-07
- Charitable organizations · Internal Revenue Service · 2026Which organisations are tax-exempt and therefore receive the account without tax.Last verified: 2026-09-07
- Publication 526 · Internal Revenue Service · 2026The charitable deduction rules a lifetime gift would use instead.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.