For many, the best method of giving is a gift through a retirement plan. In estate settlements, retirement plan tax rates can range up to 60%. We would like to help you control the disposition of your retirement plan assets to your family—while possibly substituting your charitable interests ahead of taxation.
Just a few years ago Congress changed the rules on retirement plans. Today, the minimum mandatory payout requirement after age 70.5 is much lower than it used to be. Consequently, as people get into their 80s and 90s it is more likely that their IRA, KEOGH, or 401(k) balances will remain higher. That is good news for the majority of older Americans! However there is a looming, and often large, tax on retirement plans that people don’t often consider while doing their estate planning.
Here is how it works: Congress allows each of us to put money into a retirement accounts tax-free during our working years. In other words, we don’t have to pay income tax on the amount of money we place in IRAs, KEOGHs, or 401ks. Additionally, our retirement account compounds tax-free as well—in order that the fund will grow as quickly as possible in order to support us during our retirement years.
However, if a person passes away while holding the retirement plan in their estate, income tax to your heirs AND possibly estate taxes could be due—again as high as 60% in some cases!
To avoid this scenario, it’s often advisable for people simply to name their favorite charitable organization(s) as the remainder beneficiary of their retirement plan. This can be easily done by calling the retirement plan administrator and filling out a new beneficiary designation form. Charitable organizations are not subject to estate or income tax, so the full value of the retirement plan can become a gift.