The Best Accounts To Leave To Charity (Not To Heirs)

by | | Other Cool Stuff, Retirement, Taxes


The best accounts to leave to charity are pre-tax accounts like a Traditional IRA or 401(k). This is because your heirs would pay income tax on withdrawals, but the charity doesn’t.

Heirs/Charities vs. Uncle Sam

Your money can only go three places:

  • You can spend it.
  • You can give it away to heirs and charities.
  • You can give it to the IRS by paying taxes.

At your death, give heirs and charities more, and Uncle Sam less! Leave your pre-tax accounts to charity, and other accounts to your heirs.

Pre-Tax Accounts: The Basics

There are three types of investment accounts: pre-tax, tax-free, and taxable. A Traditional IRA and 401(k) are the best-known pre-tax accounts.

Withdrawals from pre-tax accounts are taxed as ordinary income, during your lifetime and after your death.

  • If you withdraw during your lifetime, you pay ordinary income tax.
  • If you leave pre-tax accounts to your heirs, they pay ordinary income tax.

Withdrawals from other accounts are taxed more favorably.

Taxed If Left To Heirs

This table shows how much income tax Uncle Sam gets at your death if you leave money to your heirs.

Account Type


IRS Gets At Death


Traditional IRA

Up To 50%!!!


Roth IRA



Joint Account


The IRS gets a big share of your pre-tax accounts, because your heirs pay ordinary income tax when they take money out.

This is even worse now that non-spouse heirs usually must withdraw the entire balance within 10 years. Even if they don’t need the money.

This can cause a huge tax bill for non-spouse heirs (i.e., your kids), especially if they’re in their peak earning years. Your kids would lose $400K to income taxes on a $1 million pre-tax account! This assumes they withdraw at a 40% tax rate.

Not Taxed If Left To Charity

Charities pay no income tax, so leave that $1 million pre-tax account to charity instead. The charity can use the full $1 million to support a cause you’re passionate about.

Then, leave other accounts to your heirs. For example, leave a $1 million Roth IRA to your kids, and they keep the entire $1 million!

During Your Lifetime

This article deals with leaving pre-tax accounts to charity at your death. We’ve also written about ways to be charitable with pre-tax accounts during your lifetime:

If you’d like to transfer the maximum to heirs and charities at your death, and disinherit Uncle Sam, schedule a FREE Financial Pulse Assessment™. This is a 3-step process to get clarity on your finances and “test drive” our services.

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