Information on IRAs
A short review of the three stages in the life of every IRA account.
• Stage one: the account owner is accumulating assets for retirement needs and they are growing completely tax-free.
• Stage two: begins at age 59 1/2 when the IRA owner may begin voluntary withdrawals or continue to grow the account. If the IRA assets are not required to meet retirement needs, the account may continue to grow tax-free until the owner's age 70 1/2.
• Stage three: the minimum required distribution (MRD) stage, the owner must begin withdrawals. The required withdrawals must begin by April 1 after the owner turns age 70 1/2. If withdrawals do not meet the minimum requirements, there is a 50% penalty imposed.
It has never been easier to include, change, or update a charity as a beneficiary of your IRA account. When your IRA was established, you selected a survivor or designated beneficiary in case of your death before the account is fully depleted. You may include Dickinson College and/or other charities as well as your family as a full or partial beneficiary of your account. You may stipulate a set dollar amount or a percentage of the account value. The possibilities are endless and a personal decision for each person.
Distributing an IRA to charity is a tax smart strategy. Most IRA assets were contributed income tax-free to the account and have compounded income and capital gains tax-free. IRA withdrawals are always taxed as ordinary income.
Upon the death of the IRA owner, when the beneficiary is other than the owner's spouse, the account may be subject to two taxes. The accumulated income tax will be taxed to the beneficiary, and if the estate is large enough, the IRA will be included and subject to the Federal and state estate tax. This may mean that the IRA account is depleted by as much as 50% to 75%. A gift of IRA assets to charity eliminates both the income and estate tax.
Now is a good time to review and update the beneficiary designation for your IRA accounts.
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