Q. My wife contends that she can inherit my retirement plan assets tax-free upon my death. I'm not so sure. Who's right?
A. For the purposes of harmony in your home, let's say you're both right. Your wife is correct in that she has the ability to defer taxes on your retirement plan assets through, for example, a spousal rollover IRA. You are also right, however, in that whenever your wife makes a withdrawal from the spousal rollover, she will pay income tax on the amount withdrawn.
Q. I plan to leave my 401(k) to my children when I die. How much will they pay in taxes?
A. It depends. Because this type of inheritance is treated as ordinary income, the taxes your children owe will depend on the marginal tax rate in which they fall. One of the downsides of leaving a 401(k), IRA or other retirement plan asset to your children is that they may likely receive it during their peak wage-earning years-when they'll lose the greatest percentage to taxes. If they don't want it all in a lump sum, they can, in most cases, stretch out their distributions (and hence some taxation) over their lifetimes beginning the year after your death.
Q. I'd like to make a charitable donation from an IRA at my death. What's the next step?
A. You can designate us as the beneficiary of a percentage of your IRA assets. The full value of the funds given to us will then go to support our mission (income taxes will not erode their value). To make your gift, you simply need to complete a beneficiary designation form, naming us as beneficiary and specifying the percentage to go to us. This designation is completely revocable during your lifetime, and your estate will receive an estate tax* charitable deduction for our share.
* Currently federal estate taxes are repealed for all deaths that occur in the calendar year 2010. In 2011, estate taxes are scheduled to be reinstated for estates worth more than $1 million at rates up to 55 percent. Congress, however, is likely to address reinstating estate taxes sooner than 2011. What the final legislation will look like and when it might become effective is unknown at this point.
Contact Us
We would be happy to assist you in your charitable planning. Contact our Development Office at 323-761-8704 or development@jewishfoundationla.org to learn more about options that may work for you.