Retire Safe & Tax Free - Inherited IRA Owners: Watch Out for These Snags

Many people believe that the rules for inherited retirement benefits are too complicated. We agree. This belief is based upon the number of plan administrator horror stories that come to my attention. What follows are a few of the more common and unfortunate situations that many people seem to face...

Required Minimum Distributions

  • The death of an account holder does not cancel RMD's for beneficiaries.
  • Typically, the plan administrator will deduct that year's RMD from the decedent's IRA prior to moving the money. If this action does not occur prior to receiving the money, you must do so right away upon receiving the funds in your account.
  • We provide the special wording for the naming of the Inherited IRA pending your receipt of the monies.

Now, there are reasons why you may NOT want to name your Trust as the beneficiary of your IRA's. By doing so you may actually increase taxation of the IRA for your loved ones that are named as your beneficiaries. Because a trust does not have a life expectancy the taking of RMD's through the trust may actually increase the tax burden and burn up the money faster.

No Life Expectancy for Trusts

  • Trusts seem to throw off a lot of plan administrators. Many administrators never permit a life expectancy payout to a trust UNLESS it qualifies as a See Through Trust. If not, most times the only options available are either a lump sum distribution or a five-year payout which ACCELERATES the spend-down of the money and creates heavy, immediate and unnecessary taxation for your beneficiaries.
  • There may be NO need for a See Through Trust if we utilize the wonderful benefits under 401 (a)(9) of the Internal Revenue Code and create a Multi-Generational IRA which can avoid heavy, immediate and unnecessary taxation for your heirs.

Death of the Beneficiary Does Not Cancel RMD's

  • John died in Year 1, leaving his IRA to Jane, his designated beneficiary. Since Jane is not the surviving spouse of John, she is his daughter, Jane was required to start taking RMD's for the inherited account in Year 2. If she does not, a 50% penalty is the result of not taking the RMD!
  • You see the problem is that most administrators do not have staff with in-depth expertise in inherited retirement benefits BUT, we do... and while most Custodial Agreements mention Stretch or Multi-General IRA's, they do not offer administering them, BUT, we can fix this problem!

Marc H. Weiss, Archer Weiss Insurance & Financial Services, Inc. Please Call Toll free: 1-800-831-2901 or (818) 610-8560