May 22, 2014

Those who have spent a good amount of time contributing to their IRA might have questions when it’s time to decide beneficiaries. For example, is it best to stretch out the payouts over a lifetime to make the most of tax benefits or to withdraw the entire amount?

(Photo Credit: beginnersinvest.about.com)

In many cases, an immediate emptying of the account is not in the best interest of the beneficiary, and it’s also something that parents may want to help their children avoid. Often, it’s difficult to suddenly manage a large sum of money, making Mom and Dad’s IRA benefits run out long before expected. Since many parents want to guard against this where possible, it’s important to note that two different strategies can help to stall an immediate withdrawal of all assets on the death of a parent.

One option is to name a trust as the IRA beneficiary, giving a trustee the power to distribute assets, but you must work with an experienced estate planner who knows how to craft a document that qualifies under IRS rules. Another option to consider is setting up the IRA as a trust account, giving trustee powers to the IRA provider, which is known as a “trusteed IRA”. This option, however, does have some downsides: higher fees and requirements for minimum balances are two of those disadvantages.

Options exist to help you plan for your future and to help beneficiaries receive assets in a somewhat-structured manner. To learn more about these planning tools, call us at 732-521-9455 to get started.