WHO SHOULD BE THE BENEFICIARY OF YOUR IRA

 

How to turn a modest inheritance into millions for our family!

 

How would you like to turn your modest tax-deferred account into millions for your family?  Depending on whom you name as beneficiary, you can keep this money growing tax-deferred for not only your and your spouse’s lifetimes, but also for your children or grandchildren’s lifetimes. 

 

Who can I name as Beneficiary? 

You have four basic options; your spouse (if married; your children, grandchildren or other individuals; a trust; a charity; or some combination of the above.

 

Option 1: Spouse

Most married couples name their spouse as beneficiary.  And, in most cases, this will be your best option, because 1) the money will be available to provide for your surviving spouse and 2) it gives you the spousal rollover option.  If you die first, your surviving spouse can “roll over” your tax-deferred account into his/her own IRA, further delaying income taxes until he/she must start taking required minimum distributions at age 70½.  After your spouse dies, the beneficiary’s actual life expectancy can be used for the remaining required minimum distributions.

 

Option 2: Children, Grandchildren, Others

If your spouse will have plenty of assets after you die, if you have reason to believe your spouse will die before you, or if you are not married, you could name your children, grandchildren or other individuals as beneficiary (ies).  This will let you stretch out your account without the spousal rollover.  Remember, after you die, the distributions can be paid over your beneficiary’s life expectancy.

 

Option 3: Trusts

Naming a trust as beneficiary will give you maximum control over your tax-deferred money after you die.  That’s because the distributions will be paid not to an individual, but into a trust that contains your written instructions stating who will receive this money and when.  For example, your trust could provide income to your surviving spouse for as long as he or she lives.  Then, after your spouse dies, the income could go to someone else.  The trust could even provide periodic income to your children or grandchildren, keeping the rest safe from irresponsible spending and/or creditors.

 

Option 4: Qualified Charitable Organization - Charity

If you are planning to leave an asset to charity after you die, a tax-deferred account can be an excellent one to use.  That’s because the charity will pay no income taxes when it receives the money.  And the account will not be included in your taxable estate when you die, reducing the amount your family may have to pay in estate taxes.

 

What are Estate Taxes and why should I care?

Estate taxes are different from, and in addition to, income taxes. When you die, your estate will have to pay estates taxes if its net value (including your tax-deferred accounts) is more than the amount of exemption at that time. In 2008 the estate tax exemption is $2 million. Every dollar over $2 million is then taxed at 45%. Also, estate taxes must be paid in cash, usually within nine months of your death. If money must be withdrawn from a tax-deferred account to pay the estate taxes, the result can be disastrous because income taxes must be paid on the money that is withdrawn to pay the estate taxes.