Who will inherit your IRA? | VailDaily.com
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Who will inherit your IRA?

Jeffrey Apps and Tracy Tutag

Are you taking IRA distributions only because you have to? Have you done such a great job of saving and planning for retirement that you feel that you won’t really need the funds you have accumulated in your IRA or other qualified retirement plan? You may prefer to have your IRA included in an inheritance you would like to leave to your heirs. However, once you’ve reached age 7012, the Federal government requires you to take a minimum amount annually from your IRA or qualified retirement plan. This amount is called the “Required Minimum Distribution” or RMD.Keeping those funds in an IRA or retirement plan keeps them as part of your estate and that may create a greater tax burden for your estate and your heirs. Holding the funds in an IRA exposes them to additional taxes – estate taxes at transfer and ordinary income tax upon distribution to your heirs. This last tax is known as “Income in Respect of a Decedent” or IRD. You will always have to pay the necessary taxes but you can seek to avoid additional or unnecessary taxes on the transfer of your estate. If you are taking the required minimum distribution, without needing those funds, you might consider ways to reduce the taxes your heirs might have to pay on their inheritance. One way to make use of the unneeded funds is to fund a life insurance policy outside of your estate. Depending on your circumstances, it could be an individual or joint survivorship policy. In most cases, it should be established outside of your estate and owned by an irrevocable life insurance trust.What does this accomplish? Using the net RMDs, or larger withdrawals from your IRA, removes funds from your taxable estate thereby reducing it and the potential estate tax bill. The life insurance policy allows you to create a legacy for your heirs through the death benefit and provides liquidity to cover assets lost to estate tax and/or income taxes. However, you should keep in mind that any funds withdrawn from you IRA are taxable and any funds remaining in your IRA could be subject to estate taxes, as well as income tax, when distributed to your heirs.A qualified financial professional, along with a legal advisor, can help you conduct an in-depth analysis of your current estate arrangements and help you develop a solution that would best meet your needs and intentions regarding the distribution of your estate. Jeffrey Apps and Tracy Tutag offer securities and investment advisory services through AXA Advisors LLC and offers annuity and insurance products through an insurance brokerage affiliate, AXA Network, LLC and its subsidiaries. They can be reached at 926.0601 or tracy.tutag@axa-advisors.com.Vail Colorado


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