Gift Tax Issues Have Been Research Paper

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The fact that the tax liability does not distinguish between qualified and non-qualified assets, means that they many people will have higher taxes when they begin taking these distributions. (Gambone, 2010) (Fisher, 2010)

This is particularly troubling because this kind of asset is often exempt from various estate and inheritance taxes. As many of the different pension and retirement plans will often claim how these investments are considered to be tax free. Yet, on the federal level there is no such distinction. This is troubling, because the conflicting regulations as far as taxes are concerned, will have an impact upon the underlying return that are investors are receiving. Where, they assume that they will be able to receive a substantial amount of tax benefits, while being able to invest in conservative areas that can provide them with continuous growth. As a result, most people are surprised by the sudden tax liabilities they will have when they begin to receive these different distributions. ("Pennsylvania Inheritance Tax," 2010) ("Pennsylvania Inheritance Tax," 2009)

At the same time, the marginal rate that an individual is paying will determine the overall amount of contributions that they are making to their pension plan. This is because most people will often compare the underlying asset class, with other investments that are outside of different retirement vehicles. The reduction in dividend income and the way that capital gains are being reported, will have an impact upon the kind of financial decisions that investors are making. Where, they will compare the overall tax benefits and availability that they will have to these funds. Given the fact that dividends and capital gains are taxed at a favorable rate on ordinary investment accounts, means that any kind of benefits that are being offered are reduced. This is because most people, will look at the two choices and determine that investing the money outside of retirement vehicles will provide them with: a better return and more flexibility. At which point, they will ignore various retirement accounts and pension plans. This is troubling, because it is showing how the current tax structure is contributing to the underlying problems that are facing individuals (who are investing in retirement assets). As they are receiving: an unfavorable return and the number of options that they have available to them are limited. This is when they will look at other kinds of accounts to invest the funds that are normally earmarked for retirement. Over the course of time, this will mean that the general public will not be focused on investing in these different kinds of assets. (Burtless, 2010)

When you step back and analyze the various issues that are affecting pension and retirement plans, it is clear that they are being impacted by uneven tax regulations. Where, investors are unable to receive the kind of return that they are looking for because: the assets are less liquid and they have higher tax liabilities. This is problematic, because most investors will often compare the underlying assets with others areas. As a result, the favorable treatment of assets that are outside of retirement will receive more focus. This is because, the overall returns are greater and investors have more flexibility among asset classes / access to the money. At the same time, the inability to receive favorable treatment for investments in annuities will cause individuals, to have higher taxes when they begin receiving their distributions. This is troubling, because it means that the overall return will be less and most people will have higher tax liabilities at time when they need the money. As a result, the various disparities in the tax regulations will mean that investors will seek out those areas outside of: various retirement and pension plans. (Burtless, 2010)

How various Tax Regulations can be Reformed?

The different tax regulations, surrounding pension and retirement plans needs to be reformed. This is because of the changes in other aspects of the law have made these areas less attractive. As a result, the policy needs to be adjusted by reducing the marginal tax rates to a point, that they will encourage investors to begin saving for retirement. This means that some kind of approach must be taken that will tax these assets at lower rate in the future. For example, one possible change that could be implemented is that the individual will have a choice, as to what rate they could pay on these assets to include: being taxed at their former or current tax rate. This is important, because it is giving investors a way of increasing their overall returns, when they begin taking distributions by: ensuring that they are taxed at the lowest bracket possible. Over the course of time, this could help to increase retirement savings, by allowing everyone to see how they can improve their return in the future. At which point, many of the different retirement vehicles would become popular. This is because of the changes in the underlying rates of: dividends and capital gains will more than likely increase in the future. At the same time, making annuity distributions more transparent will have an impact on retirement investing. The reason why is because, the current tax structure is causing these assets to be subject to higher rates. This is despite the fact that they are often placed in many different retirement accounts. Therefore, lowering this rate and providing investors with a choice about what bracket should be applied (through either: their former or current rate) will help them to see how this could increase their overall return. When you put these different elements together, this is showing how reducing the overall tax rate for retirement accounts will increase their popularity. At which point, investors can be able to see how this will improve their overall return.

Clearly, the biggest problems affecting various retirement plans are that the underlying assets are being taxed at a higher marginal rate (in comparison with other areas of investing). This is problematic, because it means that many investors will often compare the total return that they are receiving with various retirement plans. Once this takes place, it will inevitably cause a shift in the flow of funds away from these assets. To restore some kind of balance requires that various reforms are initiated. One way that this can be accomplished is through: lowering the marginal rates in these areas, by giving investors a choice between how they will be calculated. This will help them to see how they can receive a better long-term return, in comparison with other asset classes. At which point, there will be a renewal of interest in investing in various pension and retirement plans. This is important, because it is showing how this kind of adjustment, could help to improve the way these accounts are used in retirement planning by: giving investors greater amounts of flexibility. Over the course of time, this will make this particular asset class more advantageous for everyone.


Annuity. (2011). Invest Words. Retrieved from:

Frequently Asked Questions about Pension Plans. (2011). Department of Labor. Retrieved from:

Pennsylvania Inheritance Tax. (2010). Pennsylvania Department of Revenue.

Pennsylvania Inheritance Tax. (2009). Pennsylvania Department of Revenue.

Burtless, G. (2010). The Shrinking Tax Preference for Pension Savings. Boston College.

Fisher, D. (2010). Annuities and Retirement Planning. About. Retrieved from:

Gambone, G. (2010). Federal Income Tax. E How. Retrieved from:

Jacobs, D. (2010). Estate Tax. Money Watch. Retrieved from:

Snow, L. (2007). The Pension Protect Act. Accounting and…[continue]

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