With Tax Day quickly approaching, many articles are circulating online with helpful tips and ways to save more. In fact, there are tips for nearly every type of taxpayer!
We’d like to share two great ways to help others while saving on taxes when it comes to inheritance plans. While a retirement plan is an excellent vehicle for accumulating assets for your use during retirement, much to many people’s surprise, it is a far less attractive way to pass an inheritance to loved ones.
Did you know when you leave your retirement plan assets to loved ones, distributions will be subject to income taxes? That percentage can be even higher if your estate is subject to estate taxes.
For example, if a person with a relatively small estate dies and leaves her daughter $100,000 in a retirement account, any distributions the daughter receives will be taxed at her ordinary income tax rate.
A better alternative for family members is to pass on income tax–free inheritances, such as real estate, cash and life insurance. Then, use retirement plan assets to help your favorite charitable causes, which receive these assets free of taxes!
Here are two ways you can use your retirement plan assets to their fullest potential:
1. If you would like extra income:
By funding a charitable remainder trust with retirement plan assets, you can avoid a taxable event and help St. Vincent de Paul. The trust makes payments to one or more loved ones for life or a term of years. Then, upon the trust’s termination, the balance supports the work of SVdP. The portion projected to go toward SVdP passes free of federal estate taxes.
2. If extra income isn’t necessary:
You can designate the SVdP as the beneficiary of all or a portion of your retirement plan assets. We will pay no income tax, and the assets will pass to the us estate tax–free, giving the SVdP 100 cents on the dollar. To complete your gift, simply ask your plan administrator for a change-of-beneficiary form.
Regardless of how you decide to give, planned charitable giving is one way to leave behind a legacy others will never forget. If you have any questions and would like to learn more, please call St. Vincent de Paul Annual Giving Manager, Donna Rodgers, at 602.261.6884.
Please remember that we are not tax advisers and you should consult your tax adviser for more information.
