If you’re among those fortunate people who, instead of needing to spend the money saved in your IRA, can afford to include it as part of the legacy you plan to leave to your beneficiaries, Scott Staton cautions in Financial Advisor Magazine, there are some things you – and they – ought to know:
- Retirement savings (either in a traditional IRA or in a tax-deferred retirement plan) will be subject to required distributions beginning at age 72.
- Adult heirs also face a deadline; they must empty the account within ten years, paying tax on each withdrawal.
- Exceptions to this rule include spouses, minor children, disabled or chronically ill heirs, and beneficiaries not more than 10 years younger than the participant (these beneficiaries may choose to spread inherited IRA withdrawals over their remaining actuarial life expectancies.
For those on the receiving end of an IRA legacy, Staton advises resisting the temptation to splurge, instead stretching withdrawals out over the entire ten years, and being conscious of the tax situation and of market conditions. For both givers and receivers of inherited IRA assets, Staton highly recommends seeking the services of a tax professional, a financial advisor, and an estate planning attorney.
Years ago in this Geyer Law blog, we quoted an advisor saying that “One of the easiest and most helpful estate planning tools (namely IRA beneficiary designations) is also the easiest to mess up.” Rules to remember:
- An IRA beneficiary form overrides the directives in a will.
- If you don’t name an IRA beneficiary (expecting those assets to simply pass in accordance with the way you’ve divided your assets in your will), you’ll have created three potential problems:
- a long delay
- having the assets be subject to creditors’ claims
- the IRA assets will likely have to be paid out within 5 yearsWho wants to name – or be – an IRA beneficiary? When it comes to IRA legacies, both giving and getting are what Martha Stewart might call “a good thing”. In fact, inherited IRAs are also known as “beneficial IRAs”, because they are intended to be of benefit. Still, as investopedia.com reminds readers, the tax laws surrounding inherited IRAs are fairly complex, and have become even more complicated since the SECURE legislation of 2019.
At Geyer Law, our goal is to help both our clients and their heirs reap the benefits of beneficial IRAs.
– by Ronnie of the Rebecca W. Geyer & Associates blog team