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Retirement Plan Gifts

Many people remain unaware of how income-tax liability erodes the value of their retirement plans. Funded with pre-tax income and appreciated without being taxed, their total value remains subject to income tax if taken by the participant, transferred to heirs or left in the estate to be taxed as income in respect of a decedent (IRD). With an estate subject to estate tax, what is left is then taxed again, consuming as much as 65 percent of the account, notwithstanding state income and death taxes.

These assets can be the most costly gift to heirs. Conversely, they make an efficient revocable charitable gift, easily arranged by a plan's beneficiary designation and not taxable as IRD to the charitable organization. In order to arrange this type of gift, simply obtain a change of beneficiary form from the retirement-plan provider. If the donor is married, the spouse will need to sign a waiver to name someone other than the spouse as beneficiary of a retirement plan. This waiver, however, is not required if the asset is an IRA.