Retirement plans increase rapidly because the assets build up tax-free.
At some point, however, tax must be paid on the funds in these plans. If withdrawals are made during the donor's lifetime, income taxes must be paid on untaxed contributions to the plan. At death, any amounts remaining in the funds are included in the gross estate and may be taxed at rates of 55 percent or more. Also, when the heirs receive the funds which are left after estate tax, they must then pay income tax, which was never levied during the participant's lifetime. While the above scenario paints a bleak picture, there may be other options available to you.