Grow Your Retirement Nest Egg with a Gift

Jeanne, a 50-year-old corporate vice president, is concerned that she is paying enormous income taxes that also reduce the amount she can save for retirement. She has “maxed out” on what she can put into the company 401(k) plan and needs more deductions, in general. Jeanne decides to transfer stocks worth $100,000 to a net-income unitrust that will pay her 6% annually or the actual trust income, whichever is less. The trust contains a “flip” provision that says she will start receiving a 6% payout starting in the year after she turns 69 years of age.

Results? For 2008, Jeanne can deduct a charitable gift of about $22,700. The trustee plans to invest for growth, at an anticipated rate of 9% a year (the historical rate of return from the stock market). If the investments go as planned, Jeanne’s trust will have grown to $560,400 by the time she retires at age 70. By then she will enjoy 6% annual payments of nearly $34,000 that will be partly tax free, partly capital gain.

Deferred Gift Annuity Alternative. Jeanne alternatively can receive larger charitable deductions and establish a significant, fixed income at retirement through a deferred payment charitable gift annuity. Deferred annuities are commonly established by people in their 50s, with instructions to start payments at an age when they expect to retire (generally 65 or 70). A new planning option allows you simply to make a “ballpark estimate” of when we should send your first check. You won’t be locked in to that date, however, and the longer you wait to begin payments, the larger your eventual payments will be. Please call us for a personalized illustration of the tax and financial benefits of a deferred gift annuity.

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