The estate planning process involves many tasks, including deciding how you will pass down your assets. With the available options and tax laws, it can be challenging to choose the best route to take. With proper planning, however, you can maximize your heirs’ benefits from your IRA.
What Is An IRA?
Individual Retirement Accounts, or IRAs are savings plans that offer a tax savings when you put money aside for your retirement. You may be eligible for a tax credit based on the money you contributed to the account. Plus, the earnings placed into an IRA are not taxed until you start taking distributions.
Do You Have A Beneficiary?
If you have a spouse, they are the logical choice for your beneficiary, but you should name additional beneficiaries, too. For instance, if you and your spouse pass away at the same time and you have not listed a contingent beneficiary, your IRA goes to your estate and becomes subject to probate. If your spouse does inherit your IRA, it can be rolled over into their IRA. However, if a non-spouse inherits it, they will be required to begin distributions within a year after the death.
Some people choose to name a trust as their beneficiary. They may do so if they have special needs or minor children, or their beneficiary doesn’t have the best spending habits. To avoid unnecessary negative tax penalties, the trust must be drafted properly. Consulting with an attorney to ensure this happens is a smart choice.
Do You Want To Stretch Out Your IRA?
If you want to leave the money in your IRA instead of using it for your retirement, you can “stretch out” the account. This leaves more assets for your heirs and is easy to do. Simply take the minimum distribution at the required time (age 70 ½). Your beneficiary can do the same “stretching out” and name a second-generation beneficiary.
As you can see, your IRA is an invaluable part of your estate plan, but the rules can be a bit complicated. To help you plan your strategy for passing down your IRA, contact us for a consultation.