While Social Security is the financial foundation for most retirees, your monthly benefit payments may be insufficient to maintain your desired lifestyle in retirement. If so, you are likely planning to use your retirement savings to close the gap between your Social Security payments and your medical and living expenses. What about the assets that remain in these accounts at your passing? With savvy estate planning, you can use your retirement accounts to support W&L, while at the same time minimizing the burdensome taxes your loved ones would otherwise pay.
RETIREMENT PLAN ASSETS
Retirement plan assets provide financial security
Taxes on retirement accounts
There are many types of retirement accounts - IRA, 401(k), 403(b), Keogh, and others. What most have in common is that contributions to these plans were tax-free so those accounts have never been subject to income taxes (The exception is the Roth IRA and other Roth retirement accounts.) The IRS ultimately must be paid, however. This happens when you withdraw funds from these accounts. Likewise, loved ones who inherit these accounts are required to pay taxes when they withdraw funds from them. Should they withdraw all assets in one tax year the income taxes due can result in much of the account assets being eaten up in taxes.
Minimizing taxes due from loved ones
You have the option, and are encouraged, to name beneficiaries for any assets remaining in your retirement accounts at your passing. If you have named charities to receive
gifts from your will or trust, a simple restructuring of your estate plan can result in a potentially significant tax savings for your loved ones.
Step 1: Remove the charitable gifts from your will or trust that you will make from your retirement plans instead. This will allow more assets to pass to loved ones free of income taxes.
Step 2: Name your favorite charities as beneficiaries of all or a portion of your retirement accounts. W&L is tax exempt, which means we will pay no income taxes on the gifts we receive from your accounts. Even if you have named loved ones to receive a portion of these accounts, you will have minimized the tax liability to heirs.
The IRA charitable rollover
If you are 70 ½ or older, consider this gift from your traditional IRA account [401(k) and 403(b) accounts are not eligible]. Your gift must be transferred directly from your IRA custodian to W&L. This IRA charitable rollover, also known as a Qualified Charitable Distribution (QCD), will not be included in your taxable income and will offer all of the tax benefits of an itemized deduction even if you no longer itemize your deductions. If you are age 73 or older and must take your required minimum distribution (RMD), a QCD can satisfy your RMD without increasing your taxable income. You can give up to $105,000 per year this way.