Qualified Retirement Plans – 401(k) and 403(b) plans, IRAs, Keoghs, and others – will be many people’s major source of income after retirement. Contributions to these plans are often tax-free and usually grow tax-free as well, making these plans many peoples’ largest single asset by the time they retire.
Yet, assets in retirement accounts are heavily taxed at death of the owner. Unlike almost any other asset, these plans must usually pay income tax, plus possible estate tax. For accounts left to anyone other than a spouse, these combined taxes can easily approach 70%. Giving part of your retirement plans will save you taxes, whether you are concerned about estate taxes or not. Retirement plans are more valuable to ESCC Foundation than they are in the hands of children.
Retirement plans designated for ESCC Foundation save enough income (and estate) taxes to pay for most of the gift.
Mrs. Jones, a friend of ESCC, leaves her family a 401(k) worth $600,000. She leaves the retirement plan to her children, while leaving to ESCC appreciated stock also worth $600,000. Combined income tax and estate tax together claim almost 70% of her account, leaving only around $250,000 to her surprised children.
Instead of leaving the 401(k) plan to her children, Mrs. Jones designates the retirement account for the ESCC Foundation. The retirement plan escapes both income and estate taxation as a charitable contribution. This arrangement also benefits her children, who inherit the $600,000 stock portfolio free of taxation on any capital gain in the stock at their mother’s death, since the basis in the stock is “stepped up” to its fair market value as of her death, and protected from any federal estate tax by the currently applicable estate tax credit.
To designate part or all of a retirement plan for ESCC Foundation, take these simple steps.
- Contact your plan administrator, by obtaining the name and address from your employer or your own records.
- Obtain a copy of the designation of beneficiary form, and list ESCC Foundation for whatever share of the balance you desire.
Please note your designation in your own records, and inform Patty Kellam, Executive Director, at email@example.com or 757.789.1749. She will enroll you in The Legacy Society, the college’s way of honoring those who include the college in their long-range planning. While the foundation would like to list your name in its publications, it will keep any details of your plans for the school secure and confidential.