Gift of Retirement Plan Assets
Careful planning for the disposition of retirement plan assets can help to avoid undesirable tax costs. In certain situations, gifts to HI-USA of retirement account balances can improve the donor’s overall tax consequences, increase the amounts passing to heirs, and reduce income and estate taxes.
Retirement assets can be subject to multiple levels of taxation. The combination of federal income and estate taxes can seriously erode the value of retirement savings.
First, as a rule, retirement savings are subject to federal income tax as the funds are distributed to the beneficiary(s).
Second, the law requires that certain minimum distributions be made from retirement accounts after the individual attains age 70 and ½. Failure to take the required amount results in 50 percent penalty tax on the undistributed amount.
Third, at death, any remaining retirement account balance is included in the calculation of the gross estate. Consequently, retirement savings can also increase federal estate taxes. A generation-skipping tax may also apply to substantial account balances that pass to grandchildren and to other remote generations.
Finally, after death, payments made from retirement accounts to the designated beneficiaries will be taxed as received by them at ordinary income tax rates.
If you are considering including HI-USA in your estate plans, or would like to learn more, we suggest a gift-planning consultation. Please email giving@hiusa.org.
Or telephone us or use postal mail.
