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How to Avoid the IRA Tax Trap (The IRS is waiting to take its share.)
Wednesday, October 13, 2021 10:05:00 AM

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Whether it’s an IRA, Keogh, 401(k), 403(B), or other accounts, your retirement plan may be your largest asset.

You’ve invested it for growth, and you’ve been cautious about taking withdrawals. With planning and luck, you and your spouse will not spend all of it in your lifetime, so there should be a substantial asset to pass on to your loved ones.

Proceed with Caution!

The IRS considers the balance left in your retirement account to be untaxed income. They term it “Income in Respect of a Decedent” (IRD), and if you bequeath that balance to your heirs, the IRS could subject it to both income and estate tax.

This potential double taxation (plus any state inheritance taxes and possible Generation-Skipping Tax if the balance goes to grandchildren) can consume more than 60 percent of the value of your account. The IRA tax trap could leave your heirs with as little as one-third or less.

Wondering what to do? Think charitably and your heirs can come out ahead.

You can name the IEEE Foundation as the beneficiary of your retirement plan, and then use other assets, not subject to income tax, to make gifts to your loved ones.

As a nonprofit organization, the IEEE Foundation will not pay income tax on the distribution, nor will the plan balance be included in your taxable estate. In turn, your heirs will receive more of your estate by receiving assets not burdened by extra taxes.

Benefits:

  • Avoid both income and estate taxes
  • Continue to take withdrawals from your retirement plan during your lifetime
  • Change the beneficiary designation if your circumstances change
  • Make a significant gift to us that costs you nothing during your lifetime, is revocable and does not affect your income or cash flow.

Next Steps:

Use your plan’s beneficiary designation form to direct your bequest to the IEEE Foundation. You can make us a full or partial beneficiary. DO NOT use your will! If you do, your retirement plan will be included in your probate estate and will be subject to the estate administration process.

  • You can make us a partial beneficiary of your plan, and direct the balance to benefit your loved ones

If you like, we would be glad to help you understand the basics of this gift plan before you consult with your plan administrator. It is really quite simple. Do not hesitate to give us a call. We look forward to speaking with you about how you can make a transformational difference — allowing us to enable IEEE programs that enhance technology access, literacy, and education and support the IEEE professional community, while also helping your heirs receive more of your estate.

If you have a plan in place that includes the IEEE Foundation, we invite you to share that news with us and join the IEEE Goldsmith Legacy League, our legacy giving group. Members of the League are Forever Generous.

Please contact us with any questions you may have about your estate and IEEE.
Phone: +1 732.562.5446 e-mail: donate@ieee.org

This publication is intended to provide general gift planning information. Our organization is not qualified to provide specific legal, tax or investment advice, and this publication should not be looked to or relied upon as a source for such advice. Consult with your own legal and financial advisors before making any gift.




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