Many people build retirement wealth to ensure their financial security in the future.
Some people also aspire to help others with their retirement wealth.
Today, we discuss three efficient ways to pass on your retirement wealth when you reach this stage in life.
Give Your Retirement Wealth To Charity
You can give away part or all of your retirement to your choice of charity.
Your retirement wealth can help the organization make great strides in promoting the cause.
There are a few ways you can get a tax break while supporting your charity.
For example, appreciated investments are an extremely efficient way to support your charity because you receive a charitable deduction at the fair market value on the date of the contribution.
You also avoid having to pay capital gains taxes on the appreciation of the security.
Leave Your Retirement Wealth To Your Children
You may wish to leave your retirement wealth to your children.
One way to efficiently leave money to your children is cash gifts instead of appreciated assets.
If you give appreciated stocks to your children, they will subjected to capital gains just the way you would if you still owned the investment.
For example, let’s say you bought stock for $5,000 and the value of this investment appreciated to $20,000 over time. If you gift your child $20,000 in appreciated stock, you have now transferred the taxation to the gift recipient.
If your child sells the investment holding for cash, he or she will have to pay capital gains taxes.
Therefore, it is much more beneficial to leave your retirement wealth to your children in the form of cash gifts.
However, make sure to note the annual gift exclusion.
The annual gift exclusion amount is $14,000 in 2015.
As long as your individual cash gifts to any one beneficiary does not exceed this annual exclusion amount, you don’t have to complete an annual gift tax return.
If you exceed the annual exclusion amount, you’ll be required to report it to the IRS. The amount will also count against your lifetime federal estate tax exemption.
Pass Retirement Wealth To Your Grandchildren
You may wish to give your grandchildren a head start in life by leaving them some of your retirement wealth.
For instance, you can save for their college tuition by contributing to a 529 plan.
The 529 plan, a tax-advantaged savings plan designed to encourage saving for future college costs, grows tax-free as long as the money is used for qualified education expenses.
Many states also offer tax incentives and deductions.
You can research your options and the specifics of each state’s offerings at savingforcollege.com.
Morningstar also publishes an annual review of the different plans using a gold, silver, bronze, neutral, and negative ratings system.
It’s important to remember the largest asset plan doesn’t necessarily mean it is the best one.
The best 529 plans usually have:
- Low cost providers
- Good tax incentives
- Robust investment options
You could also open a custodial account for your grandchildren.
A custodial account allows an adult to open an account for a minor who is under age 18 or 21 (depending on the state).
These accounts can help fund many events and milestones in your grandchildren’s life such as summer camp, traveling for a sports competition, or a dream wedding.
However, control of custodial accounts eventually pass to your grandchildren. Make sure to communicate how you want the funds to be used as even good children and grandchildren can make immature financial decisions.
Note that custodial accounts can have a negative impact on financial aid for education.
You can also make direct gifts to your grandchildren.
There are no gift limits for payments made directly to medical and education providers.
For example, if your grandchildren go to a private school, you can pay their tuition directly to the school without worrying about the tuition exceeding the $14,000 annual limit.
The same rules apply for medical procedures or treatments.
Distributing your retirement wealth is a personal decision, however, it’s important to make sure you give away your money in the most efficient manner.
Having a well thought out plan will ensure your retirement wealth is appreciated to the fullest by your loved ones.
