Tax-Smart IRA Planning for Donors: Strategies for Gifting and Legacy Goals

If you are nearing or in retirement, an individual retirement account (IRA) most likely represents one of the largest and most tax-sensitive assets you own. As you think about your legacy, it’s important to learn about your tax‑efficient options.

With thoughtful planning, IRA assets can support both lifetime income needs and generosity goals. Balancing the two questions below often enables you to give more than you ever thought possible.

• How do I care for myself and my future?
• How can I support the causes and people I love?

Starting at age 73, you must begin taking required minimum distributions (RMDs) annually. These withdrawals from your IRA are taxable and increase your adjusted gross income (AGI), potentially leading to:

• Higher income tax liability.
• Higher Medicare premiums.
• More Social Security benefits subject to tax.

As a result, managing AGI is one of the most important levers in tax planning. Even small reductions in AGI can meaningfully improve your overall financial picture.

If you are 70 ½ or older, a QCD allows you to give up to $111,000* annually directly from your IRA to a qualified charity, bypassing income tax and satisfying your RMD requirement. Remember: QCD eligibility begins at age 70 ½, even though RMDs don’t begin until age 73.

A great example comes from donors Steve and Bev, whose financial advisor introduced them to the idea of QCDs after they experienced a health scare. They established a nonadvised fund at Thrivent Charitable, avoided recognizing taxable income from their IRA distribution, and pre-selected the charities they wished to support—achieving simplicity, tax efficiency, and long-term generosity. Read more of their story here.

You may also consider:

• A once-in-a-lifetime charitable gift annuity (CGA) funded with IRA assets.
• A once-in-a-lifetime charitable remainder trust (CRT) funded with IRA assets.

These tools can help reduce taxable income and create more predictable financial outcomes.

What if you are hoping to support the causes you cherish and the people you love upon your death? IRA assets are among the most tax‑burdensome assets to leave to heirs due to the 10‑year withdrawal rule, which may force beneficiaries into higher tax brackets.

After death, IRA assets can fund a testamentary charitable remainder unitrust, providing an income stream to heirs while supporting charity at the end of the trust.

Life insurance wealth replacement can be an effective, tax-beneficial way to benefit heirs in lieu of an asset redirected to charity. You may take strategic IRA withdrawals and repurpose them into life insurance to benefit heirs, while leaving the IRA itself to charity. This can help replace the value the people you love might otherwise lose to income taxes.

Life events often create natural moments for you to consider IRA giving strategies:

• Age 59 ½: IRA withdrawals become penalty-free.
• Retirement: Lower-income years can be ideal for gifting.
• Age 70 ½: QCD eligibility begins. Learn more about QCDs.
• Age 73: RMDs go into effect and can potentially increase AGI and tax complexity.
• Death of a spouse: Introduces new tax brackets, AGI impacts, and beneficiary considerations.

1. What charities or causes are closest to your heart?
2. Would reducing your taxable income this year support your financial goals?
3. How do you want to balance leaving assets to loved ones and supporting the causes you cherish?
4. Have you thought about how your IRA could be part of your legacy?

Effective IRA planning can help you reduce taxes and support the causes you cherish. Partnering with your Thrivent financial advisor and Thrivent Charitable gives you added tools and expertise to help use your IRA assets wisely and leave a meaningful legacy. Contact our team of charitable experts to explore your options.