May 2, 2014

If you have spent your working and pre-retirement years pouring into, rather than having to tap into, your retirement savings, congratulations! You’re on your way to being set up for success. Before kicking back and relaxing, though, it’s worth conducting a review to see how you’ve set up the beneficiary on your IRA. There are possible estate tax and income tax risks for you and your chosen beneficiary.

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For non-Roth retirement accounts, you’ll want to factor in how long the beneficiary will push off distributions, the required minimum distributions, and the possible income tax bracket for that individual. All of these factors ca give you a window into the tax liability for the beneficiary. The majority of the time, RMDs will kick in pretty soon after a retirement plan is inherited. That depends on the oldest beneficiary, however, so the younger your beneficiaries are, the better off they’ll be. With smaller RMDs, there’s better opportunity for them to benefit from tax-deferred growth in the retirement account they are inheriting.

If you list your spouse as the beneficiary, which many people do, bear in mind that this could will increase their own taxable estate (although you’ll be able to transfer to your spouse estate tax free). Any beneficiaries outside your spouse will probably mean that your retirement account is included in your estate. Have you considered Stand Alone Retirement Trust? To learn more about the best planning strategies for your retirement account and asset protection needs, send us an email to info@lawesq.net or contact us via phone at 732-521-9455 to get started.