ARTICLE: Planning With Retirement Plan Assets: Asset Protection and Tax Savings

Planning With Retirement Plan Assets: Asset Protection and Tax Savings

For many of our clients, the largest asset they own is their retirement account at the time of their death. This is so because retirement plan distributions are taxed when you take it out, so it is often the last money that is spent. So at death, it is often the largest asset our clients have.

When a retirement account is left to a beneficiary who isn’t your spouse, that beneficiary may defer taking all the money out and instead may withdraw money from it over 10 years. The issue is that oftentimes the beneficiaries are unaware of this tax benefit and make the error of withdrawing the entire account right away. (Please note that there are some exceptions to this general rule that may allow for a longer time period for distributions.)

It is also worth noting that while you are alive and the money remains inside of the retirement account, it has a level of creditor protection. After you pass away your beneficiary typically loses this creditor protection. It’s also possible that the inherited money will become a marital asset to be divided during a divorce settlement.

There is a better way to approach planning for retirement accounts. One option is to pay all of the retirement accounts in a Retirement Plan Trust at the time of your passing. This trust preserves income tax saving and protects the retirement accounts from the beneficiary’s divorce, creditors, and lawsuits, and encourages the beneficiary to defer taking the retirement assets out as a lump sum withdrawal. 

If you have retirement accounts and would like to find out more about planning with a Retirement Plan Trust, please call Roth Elder Law, PLLC today so that we can help ensure you have the best estate plan possible and your family is taken care of.

Contact Us Today

We at Roth Elder Law, PLLC, believe in providing services in a way that clients can easily understand and meaningfully participate in designing and maintaining their estate plan for their loved ones, as well as be assured that their plan will be administered according to their wishes.