Planning Your Estate Around IRAs: What You Need to Know About Required Minimum Distributions
With the decline of employer-funded pensions, and the steady decrease of Social Security checks’ purchasing power compared against inflation, an individual retirement account (IRA) has proven to be an important part of millions of Americans’ retirement savings. However, an IRA is also an important factor to consider when planning your estate.
How Are IRAs Inherited?
IRAs can be inherited, like most financial instruments. When setting up an IRA, the owner will usually be asked to name a beneficiary. This beneficiary is the person who will inherit the IRA if the owner dies. Most often, but not always, this is the surviving spouse, who is afforded certain leniencies regarding the timing and taxation of the IRA’s required minimum distributions (RMDs).
What Is a Required Minimum Distribution?
A required minimum distribution, abbreviated as an RMD, is the minimum amount that has to be withdrawn from an IRA each year, as established by the IRS. By design, RMDs will eventually exhaust the funds of an IRA, preventing it from accruing gains forever. As part of retirement planning, you and a financial advisor would discuss how large your IRA needs to be before you are required to make RMDs so that your income will last throughout your expected lifetime at your needed level.
However, if someone dies before the funds of an IRA are exhausted, it is then transferred to the named beneficiary or next of kin. This transfer includes the transfer of the requirement to make RMDs.
Since 2020, the requirement to take RMDs applies to persons who have reached their 72 birthday. However, coronavirus relief legislation has temporary waived RMDs for IRAs and on 401(k)s.
How Can an Estate Planning Law Firm Help You and Your Survivors Prepare for Required Minimum Distributions?
The specifics of the laws, both federal and state, that govern the taking and taxation of RMDs can overwhelm the average person planning their retirement and their estate. This is where our firm of experienced attorneys, specializing in estate planning and the transfer of financial instruments such as IRAs, comes in.
We can help you plan your estate so as to minimize the tax liability your survivors will face while preserving a steady source of income for those you love.
Estate planning and retirement choices are deeply personal, individual choices. We understand this. Call our office today to discuss your particular situation.