Section D of the Data Taker reviews the Stevens' retirement plan assets. The value of plan death benefits is included in the decedents' estates, but any retirement benefits that terminate at death are not included. At present, no retirement benefits are annuitized; retirement income is derived through systematic distribution programs.
| Plan 1 | Plan 2 | |
| Plan Type | 401(k) | Rollover IRA |
| Present Value | $1,600,000 | $4,500,000 |
| Expected Growth | 6% | 6% |
| Beneficiary | Mary | Mary |
| Annual Contribution | $0 | $0 |
| No qualified plan assets. |
Comments
Do John and Mary need all the income their $6.1 million can provide? With no mortgage (or any other significant debt, for that matter), it is unlikely they will need all the income this money will provide (which will easily be anywhere from $260,000 to $280,000 per year under a joint and survivor income distribution option, for example). Preserving the assets for the benefits of their children and even their grandchildren with a stretch IRA is a planning consideration here.
This income tax reducing strategy does little to help the Stevens' estate tax liability, however. Were John to try and shift these assets out of his estate before death, he would become immediately liable for income taxation on the distribution. Therefore, it is appropriate to point out that the stretch IRA concept, while being an effective way to reduce income taxes on qualified plans and stretch out mandatory distributions over multiple generations, does not offer estate tax relief; use of the marital deduction will help at John's death (provided Mary is alive then), but continuation of the strategy at Mary's death would add a sizeable asset to her estate.
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