IRA Beneficiary Rules - What You Don't Know Can Hurt Your Kids
Click here for a good, concise article on one of the most important but frequently overlooked aspects of estate planning, particularly the interplay of IRAs and trusts. While the articles discusses the impact of estate taxes on IRAs, it does not mention that the current federal estate tax exemption is $2 million, so most IRA owners, even of relatively large accounts, need not worry about estate taxes.
However, providing protection of an inherited IRA from creditors, divorce and mismanagement,is something most people should consider. See my previous postings on IRA/Retirement Plan Trusts under the IRA heading.
Question:Should the beneficiary (spouse)of an IRA account die before the date of the final distribution does he/she have the right to designate the oldest child as the next beneficiary permitting for the remaining IRA funds to be distributed over that child's life expectancy?
RESPONSE: The beneficiary of an inherited IRA can generally name a beneficiary to receive the account after his or her death, but distributions would be made over the remaining life expectancy of the first beneficiary. Only if a spousal rollover was done can the next beneficiary (in this case the child) take distributions over his or her life expectancy.
This is a complex area of the law and advice should be sought before making any decisions regarding the account.
i live in NC. i am seperated, i want to leave my IRA to my 3-kids, do i need a waiver signed by my x to allow this.
RESPONSE: No, spousal waivers are required only for qualified plans such as 401(k)s.
Do you have to make your husband the beneficiary of a 401K or an IRA in the state of NC? Can you make it your child instead?
RESPONSE: Under federal law, your spouse must consent if you wish to name someone else as beneficiary of a 401(k). There is no federal or state restriction on who can be beneficiary of an IRA.
My two children (ages 14, 20) inherited beneficiary IRAs from a grandparent. If the money (approx. $10,000 each) is cashed out, will it be taxed at the parent's rate? Would it be better to withdraw it over time?
RESPONSE: Most of the withdrawals would probably subject to the "kiddie tax" - check with a tax adviser for details, particularly with regard to your oldest child. The best way to minimize taxes is to take only the required minimum distribution each year.
I have my IRA listed with my spouse, and 2 children as benificiaries assuming at my death each benificiary will own 1/3 each of the IRA.
I was told that my spouse will automatically receive or own 1/2 of the IRA at my death, and the 2 children will each own 1/2 or the remaining balance. Example: IRA $30,000. My spouse would receive $15,000 and each child will receive 1/2 of the remaining $15,000. Is this true?
It is my intention for spouse to receive $10,000, and each of the 2 children to receive $10,000.
Please advise.
RESPONSE: You can generally name whomever you wish as beneficiary of your IRA. However, a surviving spouse has a right to a certain percentage of your property and can apply to the court to get that amount if he or she did not receive it. I recommend that you consult with an attorney to received advice regarding your particular situation.
My dad filled out his IRA beneficiary form, "to be distributed as per my last will and testament." The beneficiary form and will were executed on the same date. His will designates his children get everything, with the exception of a lump sum to go to his wife, whom he married right before he died (he knew he was dying). The IRA holder has decided that he does not have a valid beneficiary designation and says the IRA should go to the wife. Why is his designation not valid? And if it's not valid, shouldn't his previous beneficiary form stand as valid (it names his children individually by name and with a bit different percentages than his will)? We live and will executed in NC. IRA account is in NY. Thank you
RESPONSE: I cannot answer your question without more information, including reviewing the beneficiary form. I recommend that you consult with an attorney.