401(k) Tops Tax Break List for the Wealthy

April 23, 2001 (PLANSPONSOR.com) - Almost two-thirds of respondents in a survey of America's wealthier individuals put 401(k)s and IRAs at the top of the list of important tools available for reducing taxes.

Respondents said that the most important tools available for reducing taxes are:

  • 40l(k) and IRA plans, listed by 60% of respondents,
  • creating a trust, cited by half of those surveyed,
  • while 22% listed making annual gifts to charity.

Tax Shelter

The survey “Financial Planning Among America’s Wealthy,’ conducted among 400 Americans with investable assets of more than $250,000 by Lincoln Financial Group (LFG), found that almost three-quarters of respondents believe that their assets are not sufficiently protected from excessive taxes. In addition:

  • just over half say that their assets are only moderately protected,
  • one out of five say there is very little protection,
  • while 27% cite adequate protection.

When asked to list goals,

  • over two-thirds of survey participants listed preserving wealth as their most important goal;
  • while almost 60% listed avoiding excessive taxes;
  • accumulating wealth was cited by 46%;
  • passing wealth onto their heirs was the goal of 38% of those surveyed;
  • while almost a quarter listed preserving their company as a very important goal.

Although the study shows that the use of trusts for estate planning is highest among those aged 60 or older and who have $1 million or more in investable assets, creating trusts is no longer the preserve of the affluent older generation. Some 56% of respondents in their late-thirties or early-forties have established a trust

Estate Rate

In terms of estate planning, the survey found that:

  • about 45% believed that providing for the needs of a spouse is the most important reason for estate planning;
  • while just under a quarter said leaving an inheritance to children or grandchildren was most important;
  • almost one in five said that lessening the federal estate tax burden was a priority;
  • while one in ten cited preserving a family business.

The reasons for undertaking estate planning varied among:

  • reaching a certain age, cited by 27% of respondents,
  • birth of children (21%),
  • reaching a certain level of wealth (18%),
  • health concerns (8%),
  • birth of grandchildren (4%), and
  • concern over preserving a business was cited by only 3%.