Gary Rathbun,CLU, CHFC, MSFS, is president of Private Wealth Consultants, and author of "Wealth Preservation for Physicians."

Have you thought much about tax issues as retirement approaches? You may well fit the following profile as you consider what to do about retirement plan assets. Suppose, like many others, your assets have accumulated over for many years and now not only are the assets not really needed for maintaining your lifestyle, they are increasing your income and estate taxes.

Rather than leave it all to your advisor to sort through, take a look at a couple of problematic pension account scenarios and several unique solutions.

Case Study: Protecting Pension Assets from Taxes

Dr. A is 72 years old and has been funding his pension plan his entire career. Currently, he has 1.5 million dollars in his pension and has a net worth of 12 million dollars. Dr & Mrs. A live a modest lifestyle and don't need the income the pension generates or the IRS requires. Dr. A is required to take 60,000 dollars from his plan this year.

At Dr. A's and Mrs. A's death, the assets in the plan will pass on to their only child (B). Assuming the entire amount goes to B, the 1.5 million will be subject to IRD (income in respect of a decedent) tax and then subject to estate tax. The two taxes combined could easily erode 60-70% of the balance.

There are several interesting options available to Dr. & Mrs. A. The first is to leave the pension account, at either the first death or the second death, to a Charitable Remainder Trust (CRT). A CRT is an irrevocable trust that will pay the income beneficiary an annual amount for a number of years or for life. Once the income obligation ends the remainder amount in the trust then is distributed to a charity or charities of Dr. A's choice.

This choice of using a CRT creates multiple tax advantages to Dr. A and his estate. When the trust CRT is funded an immediate income tax deduction for the present value of the income flows is available. Additionally, the entire amount of the pension account is then removed from the estate. It is important to remember that this becomes an irrevocable choice and all of the T's need to be crossed and I's dotted. Most importantly, Dr A. & Mrs. A need to be charitably inclined and have a desire to benefit their community.

The income from the CRT can be a fixed amount each year or a percentage of the asset balance. The income can be paid to one or more beneficiaries for their entire life or it can be set up to pay for a set number of years not to exceed 20.

Charitable Contributions from Your IRA

Another interesting option for Dr. A is to make current charitable contributions from their IRA. The Pension Protection Act of 2006 includes a provision that allows someone age 70 and1/2 to make a current charitable contribution that while not income tax deductible, can be used to fulfill the required minimum distribution.

For example, Dr. A needs to withdraw 60,000 dollars from his IRA for this year and that amount will be fully income taxable to him this year. If instead he directed the trustee of his IRA to make a qualified distribution to a charity, the 60,000 dollars would go to charity and Dr. A would have fulfilled his required minimum distribution for the year.

Had Dr. A taken the required distribution himself, he would have paid approximately 20,000 dollars in current income tax and only netted 40,000 dollars. By using the provision in the pension protection act of 2006 he was able to direct 60,000 dollars to charity and it really only cost him 40,000 dollars.

Each IRA owner can make a qualified charitable distribution of up to 100,000 dollars per year. So if Dr. A & Mrs. A each have an IRA, between the two of them they can give up to 200,000 dollars a year to charity without any negative tax consequences.

As with any charitable contributions, proper documentation needs to be made. Also, of course, this documentation burden falls to the donor. The gift can not go to a donor advised fund or some supporting organization. The IRA trustee issues a 1099-R and this transaction needs to be declared on the donor's tax return.

For the charitably minded individual the use of your pension money to enhance your gift giving desires can be very fulfilling. Charities are just now starting to realize the large potential of being able to receive these types of funds.