Retirement Plan Designation

Make a Legacy, Not an IRS Payment

Arthur spent his career establishing a small business and has been a member of the Friends of the Parks Conservancy for the last ten years. Each morning he takes a hike in the parks near his home before heading to the office. He has been thinking about some way to make a gift that will provide for the parks in years to come.

Over the years, his wise planning allowed him to accumulate a sizeable IRA. Arthur was surprised to learn that if he leaves the IRA to an heir, the assets will be significantly reduced by a variety of taxes. Here is how retirement plans, including IRAs, pension plans, profit sharing plans, 401(k) plans and annuity plans, are taxed at death:

1. Assets distributed to family members (other than a spouse) are considered taxable income to the beneficiary. Current Federal income tax rates range from 15%to 39.6%.
2. If your estate is subject to Federal estate taxes the rate will range from 41% to 50% tax.
3. A small percentage may be all that goes to a loved one after tax.

Arthur has decided to avoid this situation by designating the Friends of the Parks as the beneficiary of his IRA, and leave his loved ones other assets of his estate. Unlike retirement plan benefits, other assets are not generally taxable as ordinary income to heirs.

He will simply contact the IRA plan administrator and change the beneficiary designation to the “Friends of the Parks.”

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