Most people have some sort of retirement account, whether it is a pension or a 401(k). These accounts must be considered during the estate planning process so they can pass smoothly to your beneficiaries. It is also important to keep in mind that your beneficiaries are going to have to pay income tax on the proceeds of your retirement accounts if you withdraw any of the money.
If the estate is very large, you might also have to pay estate taxes on retirement accounts. Interestingly, retirement accounts are some of the most heavily taxed accounts and you need to keep this in mind when you are planning your estate. If the retirement account is large and ends up being taxed at the full amount, you could end up paying as much as 70 percent of the worth of the account in taxes. This is why you need a good retirement planner who can help get this figure down.
The key is to not make withdrawals to the retirement accounts and let them grow for as long as possible. The interest will keep growing on the accounts and you won’t have to pay any taxes as long as you don’t withdraw any of the money. A good estate planner is going to know all the ways to save you money and make the most of your retirement accounts.
The key to estate planning and retirement accounts is to defer having to pay any taxes on the retirement income by postponing withdrawals. The longer you can postpone withdrawals the better. The money will continue to grow and you will end up with the account being worth more. As you near your retirement age you can start making withdrawals on the accounts.
Careful retirement planning is essential if you want to make the most of your money and save everything you can for your beneficiaries. A good estate planner will work with you to develop a plan that is going to minimize taxes and make the most of your money so your family gets the most money possible.
When you are dealing with retirement accounts, you have to keep in mind that they are treated much differently than real estate and other assets. Retirement accounts can be hit by huge taxes that can eat away huge chunks of your accounts. Make sure that you consult with an estate planner if you have substantial retirement accounts.