You Have a Tax Problem But You Don’t Have To
Paying the taxes you expect to pay is hard enough — but paying unexpected taxes is super painful and often avoidable! But you can save tens of thousands of dollars in these commonly overlooked taxes by being generous with your IRA and 401(k) accounts.
Tax time can be such a headache — especially if you have multiple retirement accounts from various places of employment.
$50,000 here… $100,000 there… It makes me thankful for accountants!
Most financial professionals recommend rolling over the various IRAs into one account.
Despite this advice, people have told me that they keep these IRAs separate so that they know which one will “pay” their future “death tax.” Or they tell me they are going to hold off on doing anything with those accounts because they will just roll over into their children’s IRA accounts.
In either case, these folks are only putting a bandaid on the problem.
They still have a tax problem that hasn’t been solved.
Thirty years ago, the IRS created these accounts to help average Americans save money for retirement while also stretching the paycheck.
However, when planning for the latter stages of life, most people forget they still owe taxes on their IRAs, 401(k)s, etc. They treat it like regular income.
Overlooking these retirement account taxes can produce quite a shock!
For example, if you have $250,000 sitting in your 401(k), when you empty the account, the math will look something like this:
$250,000 x 35% (Average American tax bracket) = $87,500 TAX BILL
That is a VERY steep tax bill to forget about — and a huge windfall for the US Government!
By some estimates, there is over $15 trillion sitting in IRAs and 401(k)s!
Doing the math again, this means the government will receive trillions of dollars in death-related estate taxes from baby boomers passing away with money left in their retirement accounts.
But these taxes can be diverted. Your accountant or your financial advisor might have even suggested some of these options:
- Give an unlimited amount to my spouse tax-free,
- Give your kids the IRA to avoid the taxes to your estate, or
- List one of the IRAs as the one that is going to pay all the estate and death taxes.
However, these just shift the fiscal responsibility elsewhere instead of eliminating the tax altogether.
The headaches continue.
When IRAs were created 30 years ago, no one expected to have over $15 Trillion sitting collectively in peoples’ accounts.
Today, those resources are static and not making a difference in anyone’s life.
But what if there was an option to use these static funds to bless an organization or mission you cared about?
Wouldn’t it be amazing if you could disinherit the government…create a legacy gift for an organization you cared about…and not significantly affect the resources you have to pass to future generations?
You can! It’s simple.
Donate the IRA or 401(k) to a charity of your choice.
There are a variety of ways to save tens of thousands of dollars in retirement account taxes. Some options can be implemented during your lifetime and others upon death.
Here are two that I recommend fairly often:
Way #1: Give up to $100,000 to a charity…tax-free.
Anything over that will need to pay income taxes. Couples over 70½ can give up to $100,000 each. You will still be paying some taxes — but you won’t be paying unnecessary taxes.
Way #2: Change your 401(k) or IRA successor beneficiary to a charity or nonprofit.
In changing the estate recipient to a charity, it will eliminate the tax responsibility. This allows you to pass your house, your life insurance and other assets to your heirs tax-free.
In the end, it’s not about the money. It’s about the impact you want to make.
Any way you choose to save your retirement money by giving, you can make a larger impact on the world than you ever imagined.
And it’s certainly more inspiring than giving your money to the government!
What kind of life-giving impact can you make with your retirement funds by saving tens of thousands of dollars in taxes? How can you make that a part of your legacy?
To save you and your heirs thousands of dollars in death-related taxes, we offer a service helping donors like you explore ideas on maximizing your tax savings potential through giving.
No cost. No obligation.
If you want to see how you can minimize your tax liability by giving to charity, let’s talk!