Naming Whitman College as your retirement plan final beneficiary can be one of the most cost-effective ways to make a substantial investment in the College. While providing a great benefit to many people, qualified retirement plan assets (an IRA, a Keogh HR-10, a corporate pension) can be among the most highly taxed items in your portfolio, particularly as part of your estate. Income from retirement plans is generally taxed as ordinary income (up to 39.6 percent). There is usually an additional 10 percent penalty tax if you withdraw income before age 59 ½, and a 50 percent penalty tax if you withdraw too little after age 70 ½.

At your death, estate taxes also are applied, as the value in your retirement accounts is part of your gross estate. Non-spousal beneficiaries usually have to pay all these taxes, greatly reducing their inheritance. The highest income tax and estate tax brackets can reduce the retirement plan value to the heirs by an amazing-and onerous-72 percent. In a better case scenario, such as low estate taxes and a 28 percent income tax bracket, the erosion can still reach 45 percent. Naming Whitman as your final beneficiary can avoid all these taxes and preserve less highly taxed assets for your heirs. Naming a charity as a beneficiary of a retirement plan in your will may not be sufficient to avoid income taxation of said plan. Consult your advisors before changing beneficiaries.

Funding a Planned Gift with a Retirement Plan