WASHINGTON WATCH
New Congressional Proposals May Affect Distribution of Retirement Assets
By Mike Davenport
At the end of 2010, IRA and other qualified retirement plans totaled nearly $17.5 trillion, accounting for almost 37% of all household financial assets. Many people transfer remaining assets in these accounts to children, which subjects them to having to pay income taxes and in many cases, these same assets are subject to the decedent's estate tax. This potential double taxation by itself makes these retirement assets less desirable to keep in the family.
Members of the Senate Finance Committee see gold in these assets as a way to increase government revenue. There is now talk about accelerating the taxation of the income stream produced by these inherited assets to as little as five years as opposed to the current rule that allows the taxable income to be taken over a lifetime.
This acceleration could produce as much as $4.6 billion in tax revenue over the next decade, and that has many in congress salivating!
Should new rules become a reality, what is the owner of these assets to do? Here are a couple of thoughts.
a) Individuals could leave these assets to fund a charitable remainder trust that will pay your desired beneficiaries, allow you to take a tax deduction, and provide a remainder interest to one or more charitable organizations you care about.
b)Owners of these retirement assets can specifically bequeath these assets to their favorite charitable organizations, thereby keeping less tax disadvantaged assets for transfer to family at death.
These latest financial winds affecting family finances swirling around in Washington are articulated in greater detail in a February 11, 2012 Wall Street Journal article by Kelley Greene entitled Congress Eyes New Rules for Inherited IRAs. Click here to read this article.
We will keep you posted on developments in Washington that may have an impact on philanthropic planning.
