The Tax-Smart Way to Leave Money to Your Heirs and to Charity
From 401(k)s and IRAs to stocks and bonds, your retirement savings accounts are taxed in different ways. So to make the most of your money, it makes sense to pass certain types of accounts to family and others to charity.


Do you want to leave a legacy to your family and your favorite non-profit? It’s a great idea that can benefit a lot of people — even more so if you do it right in terms of taxes.
Taxes apply differently to various types of investment accounts. For example, IRAs, 401(k)s and some other types of accounts are tax deductible at the front end. They are wonderful accumulation vehicles because they allow your money to grow without being taxed. But distribution is another story. Money withdrawn from those accounts can be considered ordinary income, which incurs the highest tax.
In contrast, non-retirement plans (non-IRA accounts) don’t help you to accumulate quite as much money, because you pay taxes on dividends and capital gains as they grow. The tax benefit to these accounts comes upon your death, when their worth is calculated using a “stepped-up basis.”
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.

Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
What’s a stepped-up basis? To begin with, the IRS defines basis as "the amount of your investment in property for tax purposes. Use the basis of property to figure depreciation, amortization, depletion, and casualty losses. Also use it to figure gain or loss on the sale or other disposition of property." When using a stepped-up basis, the value of the account is not determined by the amount of money you originally paid for it, but by its worth on the date of your death.
For example, let’s say 30 years ago you bought a stock for $100, and it is now worth $100,000. If upon your death, your heirs sold it for $100,000, they would have no gain. Even though you made $99,900 on that lucky investment, since the date of death value ($100,000) is their basis, they made no profit and pay no taxes.
As you can imagine, your heirs would probably prefer to inherit non-IRA accounts, because they won’t be taxed. Qualified charities, on the other hand, don’t care which type of account you leave to them. Why? As non-profits, they won't pay taxes on any legacy you leave them.
So, if you want to leave money to your family and donate to charity, talk to a professional about willing your non-IRA taxable account to your heirs and your IRA to a non-profit, to maximize the good your financial legacy can do.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Ken Moraif is the CEO and founder of Retirement Planners of America (RPOA), a Dallas-based wealth management and investment firm with over $3.58 billion in assets under management and serving 6,635 households in 48 states (as of Dec. 31, 2023).
-
The Most Tax-Friendly States for Investing in 2025 (Hint: There Are Two)
State Taxes Living in one of these places could lower your 2025 investment taxes — especially if you invest in real estate.
-
Want To Retire at 55? See If You Can Answer These Five Questions
Who said you can’t retire at 55? If you say yes to these questions, you may be on your way to an early retirement.
-
Potential Trouble for Retirees: A Wealth Adviser's Guide to the OBBB's Impact on Retirement
While some provisions might help, others could push you into a higher tax bracket and raise your costs. Be strategic about Roth conversions, charitable donations, estate tax plans and health care expenditures.
-
One Small Step for Your Money, One Giant Leap for Retirement
Saving enough for retirement can sound as daunting as walking on the moon. But what would your future look like if you took one small step toward it this year?
-
This Is What You Really Need to Know About Medicare, From a Financial Expert
Health care costs are a significant retirement expense, and Medicare offers essential but complex coverage that requires careful planning. Here's how to navigate Medicare's various parts, enrollment periods and income-based costs.
-
I'm a Financial Planner: Could Partial Retirement Be the Right Move for You?
Many Americans close to retirement are questioning whether they should take the full leap into retirement or continue to work part-time.
-
From Mortgages to Taxes to Estates: How to Prepare for Falling Interest Rates
As speculation grows that the Federal Reserve will soon start lowering interest rates, now is a good time to review your financial plans for housing, estate, taxes, investing and retirement to make the most of potential changes.
-
This Is How Lottery Winners Build Lasting Legacies, From a Financial Professional
Winning a massive lottery jackpot, like the recent $1.4 billion Powerball, requires seeking immediate legal and financial counsel, protecting your identity and winnings and planning your legacy.
-
Ask the Editor, September 12: Tax Questions on 529 Plan Rollovers to a Roth IRA
Ask the Editor In this week's Ask the Editor Q&A, we answer four questions from readers on transferring 529 plan money to a Roth IRA.
-
I'm an Investment Strategist: This Is How the Fed's Next Rate Move Could Impact Your Wallet
Interest rate cuts might be coming, which could affect everything from your credit card debt to your mortgage. It's smart to prepare now — here's how.