Administration November 4, 2002

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.
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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

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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%.

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