Having both kids and a charity as beneficiaries on an IRA.....

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1210sda
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Having both kids and a charity as beneficiaries on an IRA.....

Post by 1210sda » Thu Jul 14, 2016 2:09 pm

The primary beneficiary of my T-IRA is DW. The secondary beneficiaries are my kids. I was planning to add a couple of charities to my IRA also as secondary beneficiaries.

However, the Nolo website has an article that states:
"if you name a person and a charity as co-beneficiaries,after your death the IRS treats the situation as if you had not named a beneficiary at all, meaning distributions will be accelerated for the individual beneficiary as well as the charity."


If I want to preserve the kids ability to stretch the withdrawal period for the IRA, I guess I can't include the charities.

Any suggestions??

1210

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Watty
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Re: Having both kids and a charity as beneficiaries on an IRA.....

Post by Watty » Thu Jul 14, 2016 2:28 pm

1210sda wrote:The primary beneficiary of my T-IRA is DW. The secondary beneficiaries are my kids. I was planning to add a couple of charities to my IRA also as secondary beneficiaries.

However, the Nolo website has an article that states:
"if you name a person and a charity as co-beneficiaries,after your death the IRS treats the situation as if you had not named a beneficiary at all, meaning distributions will be accelerated for the individual beneficiary as well as the charity."


If I want to preserve the kids ability to stretch the withdrawal period for the IRA, I guess I can't include the charities.

Any suggestions??

1210
You could separate the funds into two IRA's with the kids on one IRA and the charities on the other.

NMJack
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Re: Having both kids and a charity as beneficiaries on an IRA.....

Post by NMJack » Thu Jul 14, 2016 2:32 pm

Watty wrote:
1210sda wrote:The primary beneficiary of my T-IRA is DW. The secondary beneficiaries are my kids. I was planning to add a couple of charities to my IRA also as secondary beneficiaries.

However, the Nolo website has an article that states:
"if you name a person and a charity as co-beneficiaries,after your death the IRS treats the situation as if you had not named a beneficiary at all, meaning distributions will be accelerated for the individual beneficiary as well as the charity."


If I want to preserve the kids ability to stretch the withdrawal period for the IRA, I guess I can't include the charities.

Any suggestions??

1210
You could separate the funds into two IRA's with the kids on one IRA and the charities on the other.
^^^this

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1210sda
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Re: Having both kids and a charity as beneficiaries on an IRA.....

Post by 1210sda » Thu Jul 14, 2016 2:37 pm

Watty wrote:
1210sda wrote:The primary beneficiary of my T-IRA is DW. The secondary beneficiaries are my kids. I was planning to add a couple of charities to my IRA also as secondary beneficiaries.

However, the Nolo website has an article that states:
"if you name a person and a charity as co-beneficiaries,after your death the IRS treats the situation as if you had not named a beneficiary at all, meaning distributions will be accelerated for the individual beneficiary as well as the charity."


If I want to preserve the kids ability to stretch the withdrawal period for the IRA, I guess I can't include the charities.

Any suggestions??

1210
You could separate the funds into two IRA's with the kids on one IRA and the charities on the other.
Thanks Watty, that is my conclusion as well. I am just seeking corroboration.

One hurdle (at least at Vanguard) is that all similar IRA's (i.e.all Traditional, all Roths) are required to have the
same beneficiaries.....If I open a new IRA at Vanguard, I wouldn't be able to have the kids on one and the charities on the other. They have to be the same, thereby negating the benefit of an additional IRA. Hope this makes sense as I've described it.

1210

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dm200
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Re: Having both kids and a charity as beneficiaries on an IRA.....

Post by dm200 » Thu Jul 14, 2016 3:45 pm

I would NOT mix a charity with individuals as beneficiaries on the same IRA. Among other reasons, some "charities" (could be a religious organization) could tie things up and sometimes are not very "charitable" about the way they do things.

IowaFarmBoy
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Re: Having both kids and a charity as beneficiaries on an IRA.....

Post by IowaFarmBoy » Thu Jul 14, 2016 4:05 pm

We've instructed our kids that we would like x% of our estate to go to charity. The majority of their inheritance should be Roth iras and taxable accounts with a stepped up basis so they won't have a lot of taxable income coming from our estate. This allows them to get the tax deduction and we have also given them some verbal wiggle room if they have an overwhelming need of some kind. I believe we can trust them to carry this out but we obviously have no control after we are gone.

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Re: Having both kids and a charity as beneficiaries on an IRA.....

Post by Alan S. » Thu Jul 14, 2016 4:29 pm

Note that the IRS RMD rules contain a "beneficiary finalization date" which is 9/30 of the year following the year of the owner's death. Any beneficiary that is paid off or disclaims by that date is NOT considered in determining the designated beneficiary for RMD purpose. Therefore, if the charity's share is withdrawn by that deadline the charity will not affect the RMDs for the individual's RMDs. Further, if the individuals create separate account by the end of that second year, they will each be able to use their own life expectancies for RMDs.

Partitioning the IRAs into separate accounts is preferable, but Vanguard does not allow this, except possibly for flagship clients. So if you want the IRA to remain there, then be sure to leave clear documentation for your survivors to pay off the charity ASAP. It may also be wise to check with the charity to determine if there are any administrative issues involving the charity name on the IRA since the check will be made out to that name.

So this is doable, but with some execution risk.

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celia
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Re: Having both kids and a charity as beneficiaries on an IRA.....

Post by celia » Thu Jul 14, 2016 4:35 pm

1210sda wrote:One hurdle (at least at Vanguard) is that all similar IRA's (i.e.all Traditional, all Roths) are required to have the
same beneficiaries.....If I open a new IRA at Vanguard, I wouldn't be able to have the kids on one and the charities on the other. They have to be the same, thereby negating the benefit of an additional IRA. Hope this makes sense as I've described it.
Then move one tIRA to another custodian. That's what I have. You can do this easiest by opening a new tIRA elsewhere and having them transfer your specified assets for you. Then you don't have to bother Vanguard with a second tIRA that will only be there a short time.

But first consider if you will be doing Roth conversions. You can do Roth conversions at both places, but it doesn't make sense to convert the charity-as-second-beneficiary when they can get the whole thing tax-free without conversions. You will also have to decide if RMDs come out of one tIRA or both.

If the percent that you want to go to charity changes over time or the markets make your investments go out of your desired asset allocation, you can always roll money from one tIRA to the other.

Note that if you die before your wife, she will need to change the beneficiaries. These may end up like you intend or may not. Also charities can "go out of business" so you may want to specify several.
Last edited by celia on Thu Jul 14, 2016 4:45 pm, edited 1 time in total.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

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Re: Having both kids and a charity as beneficiaries on an IRA.....

Post by Sheepdog » Thu Jul 14, 2016 4:41 pm

This may mean nothing to you or it may. I have TIRAs and Roth IRAs. The secondary beneficiaries for the TIRAs are charities. For the Roth IRAs I send to my children. When the children inherit they will not have any income tax to pay since they are Roths.
It's not what you gather, but what you scatter which tells what kind of life you have lived---Helen Walton

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celia
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Re: Having both kids and a charity as beneficiaries on an IRA.....

Post by celia » Thu Jul 14, 2016 4:46 pm

Sheepdog wrote:This may mean nothing to you or it may. I have TIRAs and Roth IRAs. The secondary beneficiaries for the TIRAs are charities. For the Roth IRAs I send to my children. When the children inherit they will not have any income tax to pay since they are Roths.
And the charities won't have to pay any tax since they are charities.

Win. Win!
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

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Re: Having both kids and a charity as beneficiaries on an IRA.....

Post by NMJack » Thu Jul 14, 2016 5:34 pm

1210sda wrote: One hurdle (at least at Vanguard) is that all similar IRA's (i.e.all Traditional, all Roths) are required to have the
same beneficiaries.....If I open a new IRA at Vanguard, I wouldn't be able to have the kids on one and the charities on the other. They have to be the same, thereby negating the benefit of an additional IRA.

Hope this makes sense as I've described it.
Yes, your description makes perfect sense and is how I have understood VG. That said, the policy itself makes absolutely zero sense because of situations such as this. I believe that VG also still retains the silly policy on Joint after-tax accounts, whereby they don't allow a TOD because "the surviving spouse gets it." :oops: Apparently they don't understand that there has been at least one incident in recorded history where both joint owners of an account die in the same unfortunate incident. :annoyed

If VG has changed their ways on this, I'll apologize in advance for any misstatements. These goofy beneficiary policies is the sole reason I no longer have any active accounts at VG.

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Re: Having both kids and a charity as beneficiaries on an IRA.....

Post by RudyS » Fri Jul 15, 2016 10:42 am

Years ago, VG allowed POD or beneficiaries on a joint after tax account. But they told me that they would not do this going forward because people get confused about sequence of distribution after someone dies. But they grandfathered existing accounts
.

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1210sda
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Re: Having both kids and a charity as beneficiaries on an IRA.....

Post by 1210sda » Fri Jul 15, 2016 1:38 pm

RudyS wrote:Years ago, VG allowed POD or beneficiaries on a joint after tax account. But they told me that they would not do this going forward because people get confused about sequence of distribution after someone dies. But they grandfathered existing accounts
.
Thanks RudyS.

"because people get confused about sequence of distribution after someone dies" doesn't seem like a very sound reason to discontinue this.

It means the survivor of a joint account will have to make sure to add the POD/TOD to the new single account. All too often, procrastination
can step in and mess things up at the death of the survivor.

Hope Vanguard changes their mind on this.

1210

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Re: Having both kids and a charity as beneficiaries on an IRA.....

Post by Alan S. » Fri Jul 15, 2016 8:04 pm

I had no problem with T Rowe Price accepting a taxable account registration of 'CPWROS with right of survivorship". Under that registration in a CP state, the entire account would get a basis adjustment upon death of the first spouse and go to the surviving spouse without probate. Further, after the death of the second spouse, there is a primary and secondary POD beneficiary.

As large as VG has become, there are always going to be white elephant cases that result in legal expenses. Restrictive policies regarding beneficiary designations not generally used throughout the industry are not warranted due to a few costly cases when they have millions of clients. It is the cost of doing business. If something becomes a consistent and frequent issue, that is another story.

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Re: Having both kids and a charity as beneficiaries on an IRA.....

Post by RudyS » Fri Jul 15, 2016 9:56 pm

1210sda wrote:
RudyS wrote:Years ago, VG allowed POD or beneficiaries on a joint after tax account. But they told me that they would not do this going forward because people get confused about sequence of distribution after someone dies. But they grandfathered existing accounts
.
Thanks RudyS.

"because people get confused about sequence of distribution after someone dies" doesn't seem like a very sound reason to discontinue this.

It means the survivor of a joint account will have to make sure to add the POD/TOD to the new single account. All too often, procrastination
can step in and mess things up at the death of the survivor.

Hope Vanguard changes their mind on this.

1210


And, in case of a common disaster situation, the account goes to probate.

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Re: Having both kids and a charity as beneficiaries on an IRA.....

Post by 1210sda » Sun Mar 17, 2019 1:53 pm

Bumping an old post to see if there are any new opinions on this.

I haven't checked with Vanguard recently, so maybe they've updated their policy.

Someone mentioned that Vanguard might allow this for Flagship clients. I dunno, doesn't sound quite fair.

1210

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Re: Having both kids and a charity as beneficiaries on an IRA.....

Post by MarkerFM » Sun Mar 17, 2019 3:06 pm

I don't know if Vanguard has changed or not, we left them completely ages ago because of nonsense like this, errors, and poor service. I think if you want to do this, and it is a great idea, then move the accounts elsewhere, like Fidelity.

I will add that you might want to consider creating a Donor Advised Fund and make it the the beneficiary. Then, you can name multiple charities as beneficiaries, and changes are easy (not really that much easier than changing a beneficiary online). You can also name your kids to a part share of the DAF and they then get to decide where to direct their share of the funds (to charities only of course).

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Re: Having both kids and a charity as beneficiaries on an IRA.....

Post by bsteiner » Sun Mar 17, 2019 5:10 pm

I disagree with Mr. or Ms. Nolo. Does he/she provide any authority for his/her conclusion?

phxjcc
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Re: Having both kids and a charity as beneficiaries on an IRA.....

Post by phxjcc » Mon Mar 18, 2019 12:21 am

bsteiner wrote:
Sun Mar 17, 2019 5:10 pm
I disagree with Mr. or Ms. Nolo. Does he/she provide any authority for his/her conclusion?
Ditto.
Respectfully asking for IRS chapter and verse and/or MH case law cites.

OhioGozaimas
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Re: Having both kids and a charity as beneficiaries on an IRA.....

Post by OhioGozaimas » Mon Mar 18, 2019 3:22 am

Fidelity permits multiple IRAs with different beneficiaries. (VG and TRP do not.)
Map out your future – but do it in pencil. – Jon Bon Jovi

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1210sda
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Re: Having both kids and a charity as beneficiaries on an IRA.....

Post by 1210sda » Mon Mar 18, 2019 8:10 am

bsteiner wrote:
Sun Mar 17, 2019 5:10 pm
I disagree with Mr. or Ms. Nolo. Does he/she provide any authority for his/her conclusion?
Hi Bruce. Thanks for responding. I'm glad you disagree. No, it was just an article. There was no reference to any authority.

Are you saying then that I could name both a charity and my kid as beneficiaries of the same IRA? That doing so would not prevent my kid from stretching his rmd withdrawals after I die and he inherits part of my IRA.

This is great. That's what I want to do. (Assuming Vanguard would allow it. May have to switch to Fido.)

1210

P.S. Would this information be found in IRS Publication 590B??

bluebolt
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Re: Having both kids and a charity as beneficiaries on an IRA.....

Post by bluebolt » Mon Mar 18, 2019 8:15 am

I recently spoke to Fidelity customer service about this. I wanted to leave a fixed dollar amount of my IRA to a charity and the remainder to my heirs.

You can't do this online, but they said I could write a letter expressing these wishes and they could handle this type of request.

bsteiner
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Re: Having both kids and a charity as beneficiaries on an IRA.....

Post by bsteiner » Mon Mar 18, 2019 8:28 am

1210sda wrote:
Mon Mar 18, 2019 8:10 am
bsteiner wrote:
Sun Mar 17, 2019 5:10 pm
I disagree with Mr. or Ms. Nolo. Does he/she provide any authority for his/her conclusion?
Hi Bruce. Thanks for responding. I'm glad you disagree. No, it was just an article. There was no reference to any authority.

Are you saying then that I could name both a charity and my kid as beneficiaries of the same IRA? That doing so would not prevent my kid from stretching his rmd withdrawals after I die and he inherits part of my IRA.

This is great. That's what I want to do. (Assuming Vanguard would allow it. May have to switch to Fido.)

1210

P.S. Would this information be found in IRS Publication 590B??
It's better to do it in one IRA. If you create two IRAs with different beneficiaries, you may end up with an unintended result if you invest them differently or you contribute to or withdraw from them non pro rata.

bsteiner
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Re: Having both kids and a charity as beneficiaries on an IRA.....

Post by bsteiner » Mon Mar 18, 2019 8:30 am

bluebolt wrote:
Mon Mar 18, 2019 8:15 am
I recently spoke to Fidelity customer service about this. I wanted to leave a fixed dollar amount of my IRA to a charity and the remainder to my heirs.

You can't do this online, but they said I could write a letter expressing these wishes and they could handle this type of request.
A fixed dollar amount may be difficult since there's no executor deciding which assets to sell or to distribute in kind. Some IRA custodians will only permit percentage or fractional shares.

You can then say in your Will that you leave the charity a fixed dollar amount, reduced (but not below zero) by any IRA benefits passing to it.

Carl53
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Re: Having both kids and a charity as beneficiaries on an IRA.....

Post by Carl53 » Mon Mar 18, 2019 8:51 am

bsteiner wrote:
Mon Mar 18, 2019 8:28 am
1210sda wrote:
Mon Mar 18, 2019 8:10 am
bsteiner wrote:
Sun Mar 17, 2019 5:10 pm
I disagree with Mr. or Ms. Nolo. Does he/she provide any authority for his/her conclusion?
Hi Bruce. Thanks for responding. I'm glad you disagree. No, it was just an article. There was no reference to any authority.

Are you saying then that I could name both a charity and my kid as beneficiaries of the same IRA? That doing so would not prevent my kid from stretching his rmd withdrawals after I die and he inherits part of my IRA.

This is great. That's what I want to do. (Assuming Vanguard would allow it. May have to switch to Fido.)

1210

P.S. Would this information be found in IRS Publication 590B??
It's better to do it in one IRA. If you create two IRAs with different beneficiaries, you may end up with an unintended result if you invest them differently or you contribute to or withdraw from them non pro rata.
The discussion above has led me to thinking about using two IRAs (already have three at VG from the days of recharacterizations) separately for charities and heirs. Currently, I have secondary beneficiaries set up as fractionally going to charities, with the balance to heirs. I was thinking of investing the charity accounts more aggressively. Am I correct that you are only speaking of potentially different balances should you use more than one IRA, not some law or confusing aspect to the financial institution that might cause a problem?

I just got off the phone with VG and they explained that all of their TIRAs for an individual are under a plan and thus are by default under the same beneficiary designation. They did offer to send me a Customized Beneficiary Kit (am a Flagship customer), which I will review to see if it meets my wants.

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Re: Having both kids and a charity as beneficiaries on an IRA.....

Post by 1210sda » Mon Mar 18, 2019 9:31 am

bsteiner wrote:
Mon Mar 18, 2019 8:28 am
1210sda wrote:
Mon Mar 18, 2019 8:10 am
bsteiner wrote:
Sun Mar 17, 2019 5:10 pm
I disagree with Mr. or Ms. Nolo. Does he/she provide any authority for his/her conclusion?
Hi Bruce. Thanks for responding. I'm glad you disagree. No, it was just an article. There was no reference to any authority.

Are you saying then that I could name both a charity and my kid as beneficiaries of the same IRA? That doing so would not prevent my kid from stretching his rmd withdrawals after I die and he inherits part of my IRA.

This is great. That's what I want to do. (Assuming Vanguard would allow it. May have to switch to Fido.)

1210

P.S. Would this information be found in IRS Publication 590B??
It's better to do it in one IRA. If you create two IRAs with different beneficiaries, you may end up with an unintended result if you invest them differently or you contribute to or withdraw from them non pro rata.
Thanks.

What about these two points which I've underlined and in bold??

1210

bsteiner
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Re: Having both kids and a charity as beneficiaries on an IRA.....

Post by bsteiner » Mon Mar 18, 2019 11:40 am

Carl53 wrote:
Mon Mar 18, 2019 8:51 am
...
The discussion above has led me to thinking about using two IRAs (already have three at VG from the days of recharacterizations) separately for charities and heirs. Currently, I have secondary beneficiaries set up as fractionally going to charities, with the balance to heirs. I was thinking of investing the charity accounts more aggressively. Am I correct that you are only speaking of potentially different balances should you use more than one IRA, not some law or confusing aspect to the financial institution that might cause a problem?
...
See above. If you have more than one IRA of the same type with different beneficiaries, you may end up with an unintended result from different investments or non pro rata contributions or distributions.
1210sda wrote:
Mon Mar 18, 2019 9:31 am
bsteiner wrote:
Mon Mar 18, 2019 8:28 am
1210sda wrote:
Mon Mar 18, 2019 8:10 am
bsteiner wrote:
Sun Mar 17, 2019 5:10 pm
I disagree with Mr. or Ms. Nolo. Does he/she provide any authority for his/her conclusion?
Hi Bruce. Thanks for responding. I'm glad you disagree. No, it was just an article. There was no reference to any authority.

Are you saying then that I could name both a charity and my kid as beneficiaries of the same IRA? That doing so would not prevent my kid from stretching his rmd withdrawals after I die and he inherits part of my IRA.

This is great. That's what I want to do. (Assuming Vanguard would allow it. May have to switch to Fido.)

1210

P.S. Would this information be found in IRS Publication 590B??
It's better to do it in one IRA. If you create two IRAs with different beneficiaries, you may end up with an unintended result if you invest them differently or you contribute to or withdraw from them non pro rata.
Thanks.

What about these two points which I've underlined and in bold??

1210
1. Yes, the children could stretch their shares.

2. The Publications are available on the IRS' website if you want to check them.

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