At the Winona Community Foundation, we regularly work with legal, financial, and tax advisors like you to help clients reach their charitable goals.

As a professional who regularly works with charitable clients, you are no doubt well aware of the tremendous benefits to both clients and charities when a client names a charity, such as a fund at the community foundation, as the beneficiary of an IRA or other qualified retirement plan.

So how can you help a client plan ahead to maximize a bequest of retirement fund assets, as well as support increased giving during the client’s lifetime?

A great way to do this is by encouraging clients to maximize their IRA contributions—for many reasons:

–Taxable income “suppression” in the year of the contribution.

–Tax-deferred growth until distribution—and now not required until age 73 of the account owner.

–Ease of changing a beneficiary designation to name the client’s fund at the community foundation, which will remove the assets from the client’s taxable estate at death and avoid income tax.

–With retirement plans flowing to charity, leaning into highly-appreciated stock and other property at stepped-up values to make bequests to family or others, effectively erasing the unrealized capital gains for the recipients.

Make sure your charitable clients don’t overlook an important tool in retirement savings maximization (and ultimately charitable giving) known as the “catch-up” contribution. This is the “extra” money that retirement savers aged 50 or older can stash away into their retirement accounts—and into more than one account as applicable.

Advisors and clients might better think of this as a bonus opportunity rather than a “catch-up,” especially if a client has been maximizing their retirement savings all along. Additionally, of course, the catch-up contribution allowance helps a client make up for years when retirement contributions fell short due to earnings or savings interruptions due to layoffs, caregiving, high-expense years or similar circumstances.

Thanks to the SECURE Act, catch-up contributions have created even more buzz about opportunities for retirement savings, especially as the rules are set to shift in 2024 and 2025. In any event, the effects can be impactful. For example, an extra $1,000 deposited annually from age 50 through 65 earning 6% on average could potentially deliver an extra $27,000 in retirement income at age 65.

From a charitable giving perspective, the greater the IRA balance, the more opportunity there is for a client to give later to a fund at the community foundation. What’s more, higher IRA balances can motivate your clients to deploy a Qualified Charitable Distribution strategy, with its many benefits:

–Beginning at age 70 ½, your client can make Qualified Charitable Distributions (QCDs) up to $100,000 in 2023 ($200,000 for married couples) and indexed for inflation beginning in 2024.

–QCD assets can be distributed to a designated or field-of-interest fund at the community foundation or to another qualifying public charity.

–QCDs can count toward Required Minimum Distributions for clients who are required to take them.

All in all, IRAs are the most prolific retirement savings vehicle in the United States, accounting for nearly 33% of the $33 trillion of total retirement assets as of December 2022. But regardless of the retirement savings vehicle, contribution maximization—and aided by so-called catch-up contributions—is a winning strategy for wealth building, family gifting, and charitable giving.