Armstrong

Every year Americans plan and dream of those "golden years" of retirement. Thanks to the benefits offered by various planning tools and professional advisers, many families are waking to attractive nest eggs in those retirement years. After an examination of tax implications at death, some families may end up feeling they have been "too successful."

This reality gives rise to an estate planning challenge: How do you handle an IRA or qualified retirement plan when it comes to planning for distribution of your estate? While these accounts and pension plans provide attractive tax benefits during your working years, they are subject to significant tax consequences at the time of death. Funds residing in these plans at death are first reduced by state and federal estate taxes, if applicable. Then, since contributions to IRAs and qualified retirement plans during life represent untaxed ordinary income, they are subject to state and federal income tax. The result can mean that the ultimate benefits realized by your heirs may be much less than anticipated (net result could be 25 percent of the assets).

Many retirement fund balances do not diminish until retirees are in their late eighties, because the individuals take only minimum withdrawals for a number of years after age 70 and a half. Growth that takes place in these funds often ends up representing sizable estate assets at death. Transferring these assets to your heirs by outright bequest may seem to be the logical manner in which to provide them a nice inheritance, but it can result in the highest levels of taxation, dramatically shrinking the actual amount of the inheritance.

• Include the MSU Foundation as a beneficiary in a will (and provide a copy of the will or that portion of the will pertaining to MSU)
• Make the MSU Foundation a beneficiary in a life insurance policy, IRA, qualified retirement plan (pension plan) or revocable trust and provide a copy of the form or document to the Foundation
• Make a deferred gift to the MSU Foundation (i.e., Charitable Remainder Trust, Charitable Gift Annuity or Life Estate)

• Co-equal status with other donor recognition clubs, including invitations to special donor events on campus
• A special edition copy of the book, Old Main: Images of a Legend

An option, which makes it possible to bypass both estate tax and income tax, is to transfer the IRA or pension plan to the Mississippi State University Foundation. Utilizing this strategy, ordinary income assets (like the IRA or pension plan) are transferred to MSU without tax, and assets like stocks, bonds and real estate are transferred to your heirs. Careful consideration of the tax implications, along with technical advice from a planning professional, can help insure that your retirement nest egg is transferred in accordance with your wishes without diminishing in value.

Please consider the designation of MSU Foundation as a beneficiary of an IRA or qualified retirement plan. As with other deferred gifts (bequests, charitable remainder trusts, charitable gift annuities and life insurance), you may specify how the proceeds should be utilized when received by the Foundation.

C. Richard Armstrong, Colonel, USMC (Ret),
Class of ’68
Director of Planned Giving
MSU Foundation
P.O. Box 6149
Mississippi State, MS 39762
Toll Free: 877-677-8283
Office: 662-325-3707
Fax: 662-325-8426
E-Mail: rarmstrong@foundation.msstate.edu

Jane, a widow, age 75, plans to leave $100,000 in a rollover IRA to her granddaughter, Mary. The IRA balance will be subject to estate taxes (assumed rate of 50%) and state & federal income taxes (assumed rate of 40%). A simplified example for Mary:

Mary could receive only 30% of the IRA balance. Jane might consider leaving the $100,000 in the IRA to charity free of all estate taxes (because of the estate tax charitable deduction) and free of all income taxes (because the charity is exempt from income taxes), and leave Mary other assets (such as appreciated stock). Mary's inheritance may be subject to estate tax but not income tax.

Donors are encouraged to consult with their tax adviser prior to entering into any deferred gift arrangement.