Naming Charity as Your IRA or 401(k) Beneficiary

Not tax or legal advice — beneficiary designation strategy depends on your estate size, heirs' tax brackets, state law, and account types. Use this as a framework before talking to a specialist.

The core insight: IRAs are "pre-tax" money, and charities pay no taxes

When you die, your traditional IRA balance passes to beneficiaries — but it carries a hidden tax liability that doesn't exist on most other assets. Every dollar in a traditional IRA represents pre-tax income that was never taxed during your lifetime. The IRS calls this Income in Respect of a Decedent (IRD) under IRC §691.

Unlike your stock portfolio or real estate, your IRA does not receive a stepped-up basis at death. A beneficiary who inherits your IRA must pay ordinary income tax on every dollar they withdraw — at their marginal rate, which could be 37% at the federal level plus state income tax.

The flip side is equally important: appreciated securities, real estate, and other capital-gains assets do receive a stepped-up basis at death. Heirs who inherit your stock portfolio pay zero capital gains tax on the embedded appreciation. These assets cost your heirs nothing in tax — they're far better candidates to pass to family.

The asset-optimization framework

The goal is to match asset type to beneficiary tax status:

Putting these two moves together — naming charity as primary IRA beneficiary and leaving appreciated assets to heirs — can eliminate a significant tax drag on your estate with no reduction in either your heirs' economic position or your charitable impact.

The tax math: $1M IRA, three scenarios

Assume a $1M traditional IRA and heirs in the 37% federal bracket. Numbers are illustrative; state income tax adds another layer.

The third scenario requires one key condition: you have roughly comparable amounts in pre-tax retirement accounts and in appreciated non-retirement assets. If so, the swap — IRA to charity, appreciated assets to heirs — is a zero-cost trade from everyone's perspective. Charity gets more; heirs get more; the IRS gets less.

How beneficiary designations work

This is the most important operational point: your IRA beneficiary designation supersedes your will. An IRA does not pass through probate. The account custodian distributes the balance directly to whoever is named on the beneficiary designation form — regardless of what your will says.

Implications:

• Updating your will is not enough. If you want charity to receive your IRA, you must update the beneficiary designation form at every custodian where you hold an IRA or 401(k). A will that says "leave my IRA to XYZ Foundation" does nothing if the designation form still names your children.
• Outdated forms are a significant risk. Life changes — divorce, death of a named beneficiary, changed charitable intent — can render old designations legally binding but personally incorrect. Review all beneficiary designations when you review your estate plan.
• Multiple accounts, multiple forms. Each IRA, each 401(k), each rollover IRA is a separate account with its own designation form. A change at Schwab does not affect your Fidelity IRA.

Choosing your charitable beneficiary: four structures

1. Direct naming: name the charity

The simplest approach: name the charitable organization directly on the beneficiary form. Include the charity's full legal name and EIN. On death, the custodian contacts the charity and distributes the IRA balance.

Best for: Donors with a single, clearly identified cause and a charity that has an established process for receiving IRA gifts (most major universities, hospitals, and community foundations do).

Limitation: If the charity changes name, merges, or ceases to exist, the designation may require probate to sort out. Review periodically.

2. Donor-Advised Fund as beneficiary

Name your DAF sponsoring organization as beneficiary (e.g., Schwab Charitable, Fidelity Charitable, or a community foundation's DAF program). The IRA proceeds flow into your DAF account on death, where your named successor advisors (typically children or trustees) continue directing grants over time.

Best for: Donors who want to keep future grant flexibility, involve family in charitable decisions, or don't yet know which organizations to support. The DAF is irrevocable once funded — this is a final charitable transfer, not a vehicle to recapture assets.

3. Private foundation as beneficiary

If you have an existing private foundation, naming it as IRA beneficiary is straightforward administratively. The IRA flows to the foundation, which then makes grants subject to the 5% minimum distribution requirement (IRC §4942) and excise tax rules (IRC §4940, 4941).

Consideration: Foundation rules are more complex than a DAF. The 5% mandatory payout, self-dealing restrictions, and 990-PF public disclosure apply. For donors already running a foundation, this fits naturally. For those considering a foundation specifically to receive an IRA bequest, a DAF is usually simpler.

4. Testamentary charitable remainder trust (CRT)

An IRA can be designated to fund a Charitable Remainder Trust at your death, created under your revocable living trust or will. The CRT pays income to your heirs for a term of years (or life), then the remainder passes to charity.

Mechanics: The IRA distributes to the estate or revocable trust, which then funds the testamentary CRT. The CRT is tax-exempt, so it receives the IRA proceeds without income tax. It invests the funds and pays a unitrust or annuity amount to named income beneficiaries. The IRA-to-CRT path avoids income tax at the trust level while providing an income stream to heirs.

Best for: Donors whose heirs could use supplemental income but who also want to ultimately benefit charity. The structure is more complex and requires a CRT to be drafted and maintained. Discuss with a specialist whether the income-stream benefit justifies the added structure versus simpler alternatives.

See the Charitable Remainder Trust Design Guide for full CRT mechanics.

SECURE 2.0 and charities as IRA beneficiaries

The SECURE Act (2020) and SECURE 2.0 (2022) significantly changed inherited IRA rules for individual beneficiaries — but the rules for charities are different.

Individual non-spouse beneficiaries who inherited an IRA after January 1, 2020 must empty the account within 10 years (the "10-year rule"). Under final IRS regulations (T.D. 10001, July 2024), if the original owner had already begun RMDs, annual distributions are required in years 1–9 with the remainder taken in year 10.³

Charity as beneficiary is different. A charity is a "non-designated beneficiary" — it has no life expectancy to measure against. The rules that apply:⁴

• If the IRA owner died before the required beginning date: the 5-year rule applies — the full balance must be distributed to charity by the end of the 5th year after the owner's death.
• If the IRA owner died on or after the required beginning date (i.e., had already started RMDs): distributions must continue based on the owner's remaining life expectancy under the Single Life Table.

In practice, most charities want to liquidate the IRA promptly — the distribution rules create a floor, not a ceiling. Charities can take distributions at any time after the owner's death; they are simply required to empty the account within the applicable window.

The 10-year rule's practical effect on planning: it has made leaving IRAs to individual heirs less attractive relative to pre-SECURE Act rules, when heirs could "stretch" distributions over their lifetime. This shift has increased the relative appeal of naming charity as IRA beneficiary for donors who were already charitably inclined.

OBBBA context: does the $15M exemption change the calculus?

The One Big Beautiful Bill Act (July 2025) permanently raised the estate and gift tax exemption to $15M per person ($30M MFJ), eliminating the TCJA sunset.⁵ For most HNW donors, this means estate tax is no longer the primary driver of charitable estate planning.

What doesn't change:

• The IRD problem is independent of estate tax. Even with $0 estate tax, heirs still pay income tax when they withdraw from an inherited traditional IRA. The 37% income-tax drag on IRA assets exists regardless of estate size.
• Charitable estate planning still saves taxes. If you have $2M in a traditional IRA and $2M in appreciated securities, directing the IRA to charity and the securities to heirs saves ~$740,000 in income tax with no reduction in what either heirs or charity receive.
• IRC §2055 estate tax deduction still exists. For the small population above the $15M threshold, assets passing to charity generate an unlimited estate tax deduction — eliminating both estate tax and income tax on IRA assets simultaneously.

Partial designations: splitting between heirs and charity

You don't have to choose one or the other. Most custodians allow you to name multiple primary or contingent beneficiaries with percentage splits.

Common structures:

• Primary: 50% charity, 50% children. Half the IRA flows to charity tax-free; half flows to heirs who pay income tax. Better than leaving 100% to heirs if you have equivalent appreciated assets to redirect.
• Primary: children; contingent: charity. IRA passes to children if they survive you; passes to charity if they predecease you. Provides a charitable backstop without committing during your lifetime.
• Primary: spouse; contingent: charity. Spouse receives full IRA (spousal rollover maintains all benefits); charity receives whatever is left at the surviving spouse's death if it isn't consumed or redirected. Often combined with a revocable trust that revisits charitable intent at the second death.

Step-by-step implementation

1. Inventory all accounts. List every IRA, 401(k), 403(b), SEP, SIMPLE, and other retirement account. Note the custodian and current primary and contingent beneficiaries.
2. Map against your estate plan. Identify which assets are pre-tax (IRA, 401k) vs. already-taxed (Roth IRA) vs. appreciated non-retirement (brokerage, real estate). The pre-tax retirement accounts are the primary candidates for charitable designation.
3. Decide the vehicle. Direct charity, DAF, foundation, or testamentary CRT — see the section above. For most donors, the DAF structure gives the most flexibility with the least administrative burden.
4. Contact each custodian. Request a beneficiary designation change form (most are available online or by phone). Provide the charity's legal name, EIN, and address.
5. Coordinate with your estate attorney. Confirm the beneficiary designation aligns with your will, revocable trust, and overall estate plan. Inconsistencies between the beneficiary form and other estate documents are the most common source of unintended outcomes.
6. Notify the charity. Especially for a direct designation, let the organization know they're named as a beneficiary. This allows them to prepare for the gift administratively and gives you an opportunity to document your intent.
7. Review every 3–5 years. Life changes, custodians change, charitable intent evolves. A beneficiary form that made sense at 60 may not reflect your priorities at 75.

Common mistakes

• Naming your estate as IRA beneficiary. This is the most expensive mistake. When an estate is named, the IRA loses all beneficiary-designation protections, must go through probate, and the 5-year rule typically applies regardless of the owner's age at death. Never name your estate unless specifically directed by your attorney for a particular reason.
• Relying on your will to direct IRA assets. A will cannot redirect an IRA. The beneficiary designation controls, period.
• Outdated designations that name deceased beneficiaries. If a named primary beneficiary predeceases you and there's no contingent beneficiary, the IRA typically falls back to your estate — triggering probate and accelerated distribution rules.
• Naming charity in your will instead of on the beneficiary form. This is a common misunderstanding. The will governs probate assets; the beneficiary form governs retirement accounts. Updating one without the other leaves the assets governed by the old rule.
• Forgetting employer plan accounts. 401(k) and 403(b) plans are governed by their own plan documents. Changing your IRA beneficiary designation does not change your 401(k). Each account requires a separate form.
• Ignoring community property state rules. In community property states (CA, TX, WA, AZ, and others), a surviving spouse may have community property rights in retirement accounts that affect what can be directed to charity. Coordinate with an attorney familiar with your state's rules.

How a specialist helps

A charitable planning specialist reviews the full picture — retirement account balances, non-retirement asset mix, family situation, estate plan, state law — to determine:

• Which specific accounts to designate, in what amounts, to which vehicle
• Whether a testamentary CRT or outright designation better serves your income and legacy goals
• How to sequence lifetime QCDs (if you're over 70½) with the longer-term estate designation strategy
• Coordination with your estate attorney on trust language and beneficiary designation consistency

A general financial advisor may not model the interaction between IRD, stepped-up basis, and your charitable intent. A specialist who works with HNW donors on estate charitable planning regularly does this analysis as a core part of the engagement.

Sources

1. IRC §691 — Income in Respect of Decedents. Established that IRD assets retain pre-tax character when inherited; no stepped-up basis applies. law.cornell.edu/uscode/text/26/691
2. IRC §1014 — Basis of property acquired from a decedent. Establishes the stepped-up basis rule for appreciated assets inherited at death (does not apply to IRD assets under §691). law.cornell.edu/uscode/text/26/1014
3. IRS T.D. 10001 (July 2024) — Final regulations on inherited IRA annual RMD requirement within the 10-year window when the original owner had passed the required beginning date. Effective for distributions beginning January 1, 2025. irs.gov — Required Minimum Distributions for IRA Beneficiaries
4. IRS Publication 590-B (2025 edition) — Distributions from Individual Retirement Arrangements. Covers non-designated beneficiary (charity, estate) distribution rules: 5-year rule if owner died before RBD; owner's life-expectancy method if owner died on or after RBD. Values verified May 2026. irs.gov/publications/p590b
5. One Big Beautiful Bill Act (OBBBA, July 2025) — Permanently raised the federal estate and gift tax basic exclusion amount to $15,000,000 per person, indexed for inflation, eliminating the scheduled TCJA sunset. congress.gov

Tax rates cited (37% ordinary income top rate, 20% long-term capital gains top rate, 3.8% NIIT) are 2026 federal rates per IRS Revenue Procedure 2025-67. State income taxes are additional and vary. All values verified May 2026.