Recently we’ve had a significant number of questions from clients regarding inherited IRA’s for non-spouse heirs.
Here are some of the common pitfalls that sadly trap the unaware:
- Not properly dividing the IRA among the heirs. For example, if the account is not split, the age of the oldest beneficiary will be used to calculate the Required Minimum Distributions (RMD’s). This shortens the number of years the money can grow tax-deferred.
- Naming a trust as the beneficiary of an IRA requires special communication with the IRS by October 31 of the year following the year the owner died. Otherwise the trust is considered a non-designated beneficiary which may trigger payout of the entire IRA sooner than planned.
- While Roth owners never have to take distributions, non-spouse beneficiaries must take distributions.
These are but a few examples of IRA and Roth IRA complexities which can trap unsuspecting heirs.
The Resonate team offers complimentary beneficiary reviews of employer-sponsored retirement plans, SEP’s, traditional and Roth IRA’s.
Since these are often the largest retirement and legacy assets, it is critical that they beneficiary designations match your retirement and estate plans. It is also extremely important that all heirs understand the rules regarding non-spouse beneficiaries.
This creates a wonderful opportunity to educate loved ones about an asset that, if handled properly, can make a significant difference in their future.
We’re ready to talk when you are.
Barbara A. Culver
CFP®, ChFC®, CLU, AEP®