After retiring, many people will be entitled to payments from one of the following retirement programs: social security, individual retirement plans, military plans, private or public employee pensions, or union pensions.

When you do your estate planning, it is important to consider any retirement benefits that you or a family member will be receiving. In this post, we will discuss the various plans.

Social Security

The federal Social Security system is the largest retirement program in the United States. This program continues to make regular payments to millions of people, despite the concern that the pool of money will eventually dry up. For many years payments began at age 65. Today, you have to be 66 to receive these payments. In 2027, the payment age will increase to 67. It is possible to receive payments starting at age 62; however, you will be penalized for every dollar received.

Relatives of a deceased person may also be eligible to receive Social Security payments. This will typically include a surviving spouse, a former spouse, unmarried children up to age 18 (or 19 if the person is a full time high school student), students with disabilities, dependent grandchildren and great-grandchildren, and dependent parents over age 62.

In addition to receiving social security, many people contribute to an individual retirement plan. For many, their retirement plan becomes their largest asset. Below we explore the different types of retirement plans.

Traditional IRAs

Traditional individual retirement accounts (IRAs) are retirement plans that you fund yourself. Taxes are not paid until money is withdrawn after retirement. Also, you decide how the money is invested. Note that SEP-IRAs are for the self-employed.

Contributions up to $5,000, or $6,500 if you are over 50, will not be taxed. This contribution limit is indexed for inflation and increases by $500 increments.

You must begin withdrawing money from your account at age 70½. The amount you must withdraw each year thereafter is determined by your statistical life expectancy. The goal is that all the money is withdrawn by the time you die. You can always withdraw more than the minimum amount. Note that minimum withdrawals are less if your spouse is more than 10 years younger.

Penalties are imposed for withdrawing money from traditional IRAs before 59½ years old. Although, if you are using the money for education, your first home, or you have a disability, the penalty may be waived.

Roth IRAs

A Roth IRA is different than a traditional IRA because it is funded by money that has already been taxed. When you make withdrawals, no further tax is due. Like the traditional IRA, money grows inside a Roth IRA tax-free. One of the key advantages to a Roth IRA is that you are not forced to withdraw minimum amounts, whereas traditional IRAs require you to withdraw minimums beginning at age 70½.

With Roth IRAs, you may contribute funds no matter how old you get. Annual contribution limits are $5,000, or $6,500 if you are over 50. You are still penalized for withdrawing funds before age 59½. Exceptions include being disabled, paying education expenses, or buying a first home for yourself or a family member.

401(k) plans

Many businesses offer 401(k) plans, or 403(b) plans if you are working for a nonprofit company or the government. Employees contribute a share of their earnings to the plan and employers will often match the contribution. You have choices on how to invest the funds. Like the other retirement plans, the funds grow tax-free until they are withdrawn. You must begin making withdrawals by age 70½ and the withdrawals are taxed as income.

Educational IRAs

Coverdell accounts and 529 plans are tax saving education accounts. Each involve naming the young people you are saving for. Funds contributed to these accounts are not taxed. Although you maintain management rights over the account’s investments, the beneficiary becomes the owner of the account.


A pension is different than an IRA plan in that pensions are not under your control. Your company sets up pensions and decides what rights you will receive. A pension will offer you the right to receive payments, but you do not have any say in how the money in a pension fund is invested. Your company will determine when payments are received.

There are different types of pension programs, including military, railroad and union. There aren’t any laws requiring an employer to offer a pension plan. Some pension plans are better than others.

The Employee Retirement Income Security Act (ERISA) is a federal law that requires pensions to make clear who is eligible for coverage. Pensions do not have to include everyone working for the company but cannot discriminate by only benefitting high-level employees.

If you are eligible to participate in a pension program, you are entitled to the following documents: (1) Summary plan description. This document explains the basics of your pension. Employers must give you this document within 3 months after you begin participation in the pension plan. It will tell you how long you need to work in order for the pension to vest. (2) Summary annual report. Your employer must provide an annual report of the pension’s financial condition. (3) Survivor coverage data. At your request, you are entitled to statement showing how much your plan would pay to a surviving spouse upon your death.

Using Your Retirement to Build Wealth for Future Generations

Although retirement planning is something you should do for your own financial protection, retirement accounts also offer some pretty cool opportunities for efficiently transferring wealth. For many people, retirement funds turn out to be one of the largest assets they end up leaving to future generations. But there are lots of pitfalls here. If your retirement funds are in an account that requires minimum distributions, a good way to maximize their growth is to leave them to someone young, enabling that person to take smaller payments and enjoy the benefits of tax deferral over a longer period of time. But of course, leaving a large amount of money to a young person has a lot of risks.

You can mitigate those risks by distributing your retirement accounts to your beneficiaries through a trust, with detailed instructions about who should receive the money and when. The IRS, however, has very specific rules about how a trust that receives retirement assets needs to be structured in order to take advantage of continued tax deferral. Leaving retirement funds to a revocable living trust or a testamentary trust will often result in accelerated fund distribution, which is the opposite of what most people are hoping to accomplish. Distributing funds to your beneficiaries via a trust can also protect those funds from creditors (including ex-spouses).

If retirement accounts could be a significant part of your estate, call us to discuss the possibility of setting up a retirement trust. A well-structured retirement trust can become a gift that keeps on giving through multiple generations.