Tax-Deferred Retirement Income and/or Assets

  • Avoid income tax on mandatory withdrawals.
  • Keep Adjusted Gross Income down for tax purposes.
  • Almost always the most tax-effective asset to give.

Retirement Plan Assets

Steve Southern has been speaking to the United Way Foundation about including it in his estate plans. He is considering adding a provision to his will leaving $100,000 for a family endowment. Steve’s wife and children will receive the proceeds of his retirement plan, of which they are beneficiaries. When Steve goes to his attorney, his attorney advises him instead to designate the United Way Foundation as beneficiary of an approximately $100,000 share of his retirement plan, and let other already-taxed assets pass to his wife and children. The reason?; All of Steve’s tax-deferred retirement plan funds withdrawn by his heirs will be subject to income tax at the time of the withdrawal, whereas the United Way Foundation, as a tax-exempt entity, will pay no income tax on funds it withdraws from Steve’s retirement plan. This strategy will save Steve’s heirs as much as much as $40,000 and provide the same amount to the United Way Foundation as would a bequest. If circumstances permit, when Steve turns 70 ½, he can accelerate the payment to the United Way Foundation by making a pre-tax, Qualified Charitable Distribution.

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