 September/October 2001 (XXXIX 4) |
ou might be surprised to learn the ultimate fate of a retirement savings plan that outlives its owner. No matter if it is an IRA, a 401(k), Keogh, SEP, or other qualified retirement plan, if it outlives you, it is subject to confiscatory taxes that can claim as much as 75% of its value.
Wanting to defer taxes as long as possible, most people take the minimum required withdrawals for as long as possible. The result is that many leave substantial assets accumulated, some in multiple plans, all with the same fate. It will not be a windfall for the family, it will be a windfall for the IRS. Multiple layers of taxation are possible because the IRS treats this money as “income in respect of a decedent” (IRD). IRD assets are subject to income tax and estate tax. Add to these generation-skipping transfer taxes, and it is possible that 10 to 15 cents on the dollar will be left for the family.
There are ways to avoid this:
- You decide to give the remainder to charity. Name a designated beneficiary such as Philadelphia Yearly Meeting, or your Monthly Meeting, or both.
- You can transfer the residual of your plan to the trustee of a charitable remainder unitrust, naming your surviving spouse or children beneficiaries for life. This would enable your spouse to avoid subjecting all the money to income and estate taxes when he or she dies, and at the same time receive a partial estate tax charitable deduction.
- It is also possible to take structured withdrawals from your plan beginning at age 59 1/2, or to make outright or life income gifts at age 70 1/2 to Philadelphia Yearly Meeting, your Monthly Meeting, or both. Gifts may also be made in appreciated stocks.
Please see your attorney and/or your accountant to examine these options and to discuss other options available to you. A gift to our Yearly Meeting is a gift to every Monthly Meeting in PYM.
Last modified: Wednesday, February 18, 2004 at 08:18 AM