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How to build more Retirement Income
Scot and Beth are both aged 40 and have good paying jobs. Both are participating in their company’s 401K plans and have their own IRA’s. Their goal is to build a bigger net estate for retirement and to help their church. The reason they don’t look so happy is that their financial planner just outlined a way for them to reach their goal using a planning device called the retirement charitable remainder unit trust, retirement CRUT for short. Let's see how a retirement CRUT can work for them.
Let's assume that each contributes $5000.00 a year from their own income to a retirement CRUT that are in 7%. Until they reach age 65, the CRUT invest and grow stocks to pay a projective 1% dividend and grow its 6%. The plan is to change the investments to bonds that pay 7% when they retire and start drawing an income. One of the keys to using a retirement CRUT is that they can make contributions to the plan even though they have maxed out the contributions the law allows to their 401k’s and IRA’s.
And like traditional retirement plans their money grows tax deferred. They will get a partial income tax deduction and then a paying less income tax. The contributions are flexible. They can dump in a lot in good years or skip contributions all together when times are tight and most people roll their 401k plans into an IRA when they retire.
When they reach age 70 and a half, the rule say that they must start drawing an income. A retirement CRUT allows them to choose when they would like to start the retirement income flow. As you all see in a minute, Scott and Beth we’re withdrawing a substantial amount of money out of their retirement CRUT that set up so that the income will last for as long as either of them lived. When they both have died, they want the value of CRUT to go to their church.
However, they can change the beneficiary anytime they want to another church or to any other nonprofit organization they want, so they’re not locked in here either. So let's take a look at the long term projections. The total contributions from age 40 to 65 all amounted to $250,000. Fifty five thousand dollars will be their tax deductions on the value that credit at age 65 was projected to be $581,000. This is going to spin off an income of $40,700 and will last for as long as both of them lived.
Based on their life expectancies, their going to draw a little over a million dollars and then when both of them have died, the gift to their church is $657,000. This is Bob Cavanaugh with the Smart Giver and that’s a quick look at how a retirement CRUT can built more retirement income and help your church.
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