Over the past few decades, saving for retirement has become more of a priority for millions of individuals. Not only have life expectancies increased, but Congress has provided taxpayers with a number of generous incentives to encourage Americans to save for retirement. For individuals who enjoy making charitable gifts, the emphasis on saving for retirement often presents a conflict. Namely, how can one continue giving generously to charitable causes without sacrificing one's retirement security? Now you can help save Americas only living coral reef along with providing for your retirement plan.

Types of Retirement Plans
For many people, their largest single asset is their retirement plan. People are often surprised to learn that they can leave retirement plan assets to charitable organizations, such as the SFFFK, at death. These gifts may be made from IRAs, Keoghs and employer plans such as 401(k), 403(b) or profit-sharing plans.

If you compare the tax treatment of retirement plans to that of other assets, you quickly see that your retirement plan requires special attention. When your heirs inherit non-retirement plan investments, such as your home or stock, they are not subject to capital gains taxation for the increase in value of those assets during your lifetime. In contrast, retirement plan assets remaining at your death are generally subject to both estate and income taxes. When you withdraw funds from your retirement plan during your lifetime, income tax must normally be paid. Your heirs will have to pay the income taxes on retirement plan assets you did not withdraw during your life.

If you leave your retirement plan assets to your family, a combination of estate tax and income tax can erode your plan account by as much as 75 percent. You can avoid estate tax and possibly defer income tax by naming your spouse as the beneficiary. However, any portion of the plan you leave to your children is -vulnerable to both taxes.

As you can see, your retirement plan may provide considerably more benefit to the government (in the form of taxes) than it does to your family. By arranging now to leave retirement plan assets to a charity, such as the SFFFK, you can make a charitable gift which comes largely out of what would otherwise be tax dollars.

An example might help illustrate the benefits of this strategy. George Meyer has an estate of $800,000 when he dies in 1999 (the estate includes $75,000 of undistributed pension money). Mr. Meyer wants the SFFFK to receive $75,000 and wants his daughter to receive the balance of his estate, after taxes. Mr. Meyer's daughter will receive a larger portion of the remaining $725,000 if he gives the SFFFK the $75,000 of pension plan money instead of $75,000 of other assets. If properly planned, the gift of pension money to SFFFK would avoid estate and income taxes. If Mr. Meyer's daughter received the pension money instead, estate and income taxes would be owed on the pension money. There are several ways to use your IRA or other retirement plan assets to make charitable gifts. Because an estate plan encompasses the unique needs of each individual, you should consult with professionals when designating beneficiaries of retirement plan assets.

Conclusion
If you have been able to set aside a substantial sum in individual retirement accounts over the years, you are to be commended. Through careful estate planning, you can minimize the taxes your estate must pay upon your death on the remaining balances and maximize the amounts you may leave both to your heirs and to the charitable organizations of your choice.

This article should not be construed as tax, accounting, estate or financial planning advice or opinion. The contents are intended for general information purposes only, and you are urged to consult legal, tax estate and financial planning professionals concerning your situation and any specific questions you may have.

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The information on this site is for educational purposes only and is not intended as legal, tax or investment advice. If you are considering a planned gift to the Sanctuary Friends Foundation of the Florida Keys, we highly recommend you consult with your own tax and legal advisors to determine the best options for you.