Who will inherit your retirement money? | VailDaily.com
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Who will inherit your retirement money?

Jeffrey Apps and Tracy Tutag

Many people continue to work even after they have reached a traditional retirement age such as 59 or 65. Some do this so that they won’t have to access their retirement funds but find out later that they have to take distributions at age 70. Are you taking IRA distributions only because you have to? You’ve done such a great job of saving and planning for retirement that you feel that you won’t really need the funds you’ve saved in your Traditional IRA or some other qualified retirement plan. You may have earmarked it instead as part of the inheritance you would like to leave your heirs. However, once you’ve reached age 70, the Federal government says you are required 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 other qualified 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 may expose them to additional taxes – estate taxes at transfer and ordinary income taxes upon distribution to your heirs. This last tax is known as “Income in Respect to a Decedent” or IRD. As a result of these taxes, your estate could be reduced by as much as 70 percent.You will always have to pay the necessary taxes but you can seek to avoid additional or unnecessary taxes on the transfer of your estate4. You might consider ways to reduce or eliminate the taxes your heirs or children may have to pay on their inheritance or consider ways to replace the funds lost to taxes. One way to make use of the unneeded funds, the RMDs, is to fund a permanent life insurance policy outside of your estate. Depending you your circumstances, it could be and individual or a 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 Required Minimum Distributions or larger withdrawals from your IRA removes funds from your taxable estate and reducing the potential estate tax bill. The life insurance policy allows you to create a legacy for your heirs through its death benefit. And, you’re providing wealth replacement to cover assets lost to estate and/or income taxes. However, you should keep in mind that any assets remaining in your traditional IRA or other qualified retirement plan will be subject to potential estate taxes at the time of their transfer and income taxes when distributed to your heirs.A qualified financial professional and estate attorney 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 (member NASD, SIPC). They can be reached at 926-6911 or tracy.tutag@axa-advisors.com.Vail, Colorado


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