If you’re like many Americans, much of your retirement assets may exist in plans such as an employer-sponsored 401(k) or an IRA. These plans are attractive retirement savings vehicles because of their unique tax structure. Many qualified plans offer tax-deductible contributions and tax-deferred growth as long as the funds stay in the account.
On most qualified plans, though, the taxes aren’t deferred forever. While the Roth IRA offers tax-free distributions, withdrawals from 401(k) plans, traditional IRAs and other IRA types are considered taxable events.
Many people assume that estate planning is only for the ultra-wealthy or for those who have enough assets to face estate taxes. That’s not true, though. Estate planning is an important piece in the financial puzzle for anyone who has accumulated assets and wishes to pass those assets onto their loved ones.
Even if you don’t meet the asset threshold to worry about estate taxes, there are still plenty of other costs that can erode your legacy. One is health care and long-term care costs at the end of your life. Another is funeral expenses. And yet another potential threat is probate.