Planning Ahead
Deborah Miller, JD, Director of Planned Giving, West Virginia University Foundation, Inc.
Retirement is a time of many
decisions. One vital financial
decision is about using the taxsheltered funds we’ve put away
for those special years.
select an annuity
-- a specific annual
amount -- that will
be paid to them
during retirement.
An alternative is to
take withdrawals of
any amount after age
59 ½, varying year
by year (distributions
before that age carry
a 10% tax penalty
except under certain
circumstances).
Some retirement plans
allow the account owner to
For those nearing
age 70 ½, an
important milestone
that affects all of
their tax-deferred
retirement funds is
approaching. By April 1 of the calendar year after
reaching 70 ½, minimum withdrawals based on age
must begin if the annuity option has not been chosen.
Current federal regulations set percentages for
minimum annual income distributions applicable to
everyone. Exceptions apply for those who are still
working.
If the required amount is not withdrawn in any
year, a 50% penalty tax on the difference between
what should have been withdrawn and what was
withdrawn is owed.
At death, most other estate assets escape income
taxes when passed on to heirs, but tax-deferred
retirement funds do not. If the heir is required by plan
rules or voluntarily requests a lump sum distribution,
the account’s full balance will be subject to income
taxes immediately. An alternative is for the heir to
request distributions according to a “spread out”
schedule. Income taxes will be owed only on the
amounts received.
Also, estate taxes may be owed. In 2013 if the
total estate exceeds
$5,250,000, a
40% tax rate is
applicable. If so, the
double taxation of
retirement funds by
the estate and on the
individual recipient’s
tax return can leave
as little as 20% 25% of the funds for
loved ones.
Further, the afterdeath double taxation
makes these assets
the ideal choice
for a charitable
estate gift to a
favorite nonprofit
organization.
No estate or income taxes will be owed on your
charitable gift, allowing the full gift amount to benefit
the organization.
To accomplish that, simply list the nonprofit
organization’s legal name (check with them to be
sure) on the beneficiary form and note the appropriate
percentage or dollar amount.
Your financial advisor or the firm handling your
retirement funds can help you in making the best
choices with retirement funds.
That’s good planning.
West Virginia Farm Bureau News 17