Retirement Plan Assets

Many of our people have participated in qualified retirement plans for many years in preparing to retire. You may be one of them. You have watched your fund grow, tax-free. In fact, many are surprised by the rate of growth in their accounts and the size of the accumulations.

For many people, these retirement accounts are their single largest asset and they plan to leave the remainder of their retirement plan assets to their children or other heirs. The disadvantage of leaving your remaining retirement assets to heirs (other than your spouse) is the tax consequences. 

Retirement benefits given to your heirs will be taxed as ordinary income, while they can be passed onto your spouse without immediate tax. In addition, if all your assets are significant enough to warrant the payment of estate taxes, your retirement funds will be liable for both income and estate taxes upon your death. In other words, after taxes, your heirs could receive one-third of the total or less.

One way around this tax problem is to give some/all of the assets to a charity, like the Church, and leave other assets to your heirs. The easiest way to donate retirement plan assets is to designate the Church as a beneficiary. All you need to do is contact the administrator of your plan. The administrator will send you the correct forms to sign. If you are married, your spouse must waive his or her right to survivor benefits from the plan (although this is not the case for IRA’s).

When you designate the Church as a beneficiary, as with a charitable bequest, you have considerable flexibility. You can give a specific amount to the Church, or a percentage to the Church and other beneficiaries (children). You can name your spouse as the primary beneficiary and your parish or school as the secondary beneficiary. There are many possibilities.

Another way to give from your retirement account is to have those assets transferred at death to a charitable remainder trust. If the beneficiary is a spouse (by combining this strategy with the unlimited marital deduction), you eliminate all federal estate taxes attributable to the retirement account.

(Tax information provided herein is not intended as tax or legal advice and cannot be relied upon to avoid statutory penalties. Always check with your tax and financial advisers before implementing any gift.)