You’ve worked hard to save for yourself and your family, and more than likely a substantial portion of your savings is in your retirement plans. These plans are the assets you use to enjoy life in retirement. As you plan your estate, you also may be considering how to use those savings to benefit your heirs.
Unfortunately, retirement assets carry a heavy tax burden when they pass to family through your estate. Although there are ways in which spouses (and to a lesser extent, other heirs) can defer taxes on these assets when they postpone receipt of the funds, the funds are subject to income tax when heirs do make withdrawals. In fact, the income tax bill can reduce a retirement account by as much as 39.6 percent, leaving your family with only about 60 percent of the original value. And, that amount will be even lower if your estate is subject to estate taxes.
A gift to heirs of securities, real estate and other non-retirement assets is not subject to the same tax burden applicable to retirement plans. These non-retirement assets make great gifts to family and others that you care about, leaving your retirement assets as a tax-smart way to support the charitable causes that are important to you.
If you were to leave your retirement plan(s) to Franklin & Marshall, 100 percent of your gift would be free from income and estate taxes, and therefore available to support our talented students. See the difference in the chart below.
COMPARE THE TAX CONSEQUENCES
| Family as Beneficiary | F&M as Beneficiary | |
|---|---|---|
|
Value of retirement |
$100,000 |
$100,000 |
|
Federal income taxes (assuming 35% marginal income tax bracket) |
$35,000 |
$0 |
|
Net amount paid to beneficiary |
$65,000* |
$100,000 |
*State income tax, along with federal and state estate taxes, may lower this amount even further.
HOW TO MAKE A GIFT OF RETIREMENT PLAN ASSETS
You can make this family-friendly and easy to arrange gift by designating Franklin & Marshall College as a beneficiary of your retirement plans. All you need to do is to request a Beneficiary Designation Form from your plan administrator and name Franklin & Marshall College as a beneficiary.
For more information about the power of beneficiary designations, see the article "A Legacy Made Simple." If you would like to speak with someone about this option for giving to F&M, please contact Mary Ann M. Cooke, J.D. ’90 at 717-358-4821 or mcooke@fandm.edu.