Craig Wear, a CFP, explains how to structure your estate gifts to charities and heirs. Leave pre-tax retirement accounts like traditional IRAs to charities, since they pay no income tax on withdrawals. Give Roth IRAs to family instead, so they get tax-free growth. This split avoids what he calls tax leakage and maximizes what everyone actually receives.
So if you're planning to leave a part of your estate to charity, consider leaving the pre tax retirement accounts like your traditional IRAs, to the charity. Since charities don't pay income tax on the withdrawals that they get, Roth IRA assets can be left then to non charitable heirs for tax free growth. So you're just kind of splitting the different assets out in a way that you're getting the biggest bang for your buck. Where taxes go where they're never. I mean assets go where they're never going to have taxes paid on it. So leaning them pre tax accounts avoids what we call tax leakage. While your heirs still benefit from inheriting the tax free Roth IRA assets.
