Why you should include estate planning in your retirement plan

April 16, 2013 (Press-News.org) Why you should include estate planning in your retirement plan

Article provided by Weiner & McCulloch, PLLC
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Baby boomers, senior adults and people of all generations put off estate planning. It can be difficult and uncomfortable to plan for what is essentially one's own death. However, if you're preparing to retire and don't have an estate plan in place yet, now is the time to move this important task to the top of your "to do" list.

Tax implications of retirement and estate planning

There are several different ways that your choices of how to retire will have tax implications, not only for you but for anyone you designate as your estate's beneficiaries. The value of your retirement plan at the time of your death, whether it is an employer-based plan like a 401K or an individual one like an IRA, is considered under the law to be part of your taxable estate. The value of those plans is used, along with other parts of your estate, to calculate whether estate tax is owed to the government.

Aside from estate tax, your beneficiaries will have to pay income tax on any funds they withdraw from your retirement plan. While income tax is automatically deferred on retirement contributions, those taxes will be applied whenever you, the retiree, or your beneficiary withdraws the benefits. The government requires that you withdraw benefits at a certain age -- typically 70 -- but if you name a younger spouse or younger relatives like children and grandchildren as beneficiaries, they can defer income taxes until they decide to withdraw them or until they reach that age threshold. By creating a retirement account for the purpose of easing the income tax burden of withdrawing retirement benefits, you can avoid the liquidation of assets.

Impact on surviving relatives

Whether you realize it or not, as you make retirement plans you are, almost by default, also making your estate plan as you name beneficiaries who will receive those retirement plans in the event of your death. While your spouse is the most likely beneficiary, other individuals can be named instead of or in addition to your husband or wife. As people are born, die and get married in one's family, it's important to adjust retirement beneficiaries throughout all of life's major events -- births, deaths, marriages and divorces. If you do name a spouse as beneficiary, there are several implications to consider, from tax burden to future income generation. For example, an option like a Joint and Survivor Annuity can help make sure that a surviving spouse receives a steady stream of income for life.

Add estate planning to your retirement plan

Many of the decisions you will make about your retirement will affect your family when you pass away. If you are in the process of planning for retirement, contact an estate planning attorney to help you make sure that when the time comes your retirement assets are passed down according to your wishes.