The distribution rules required at the death of an IRA owner depend on several things:
1. Did the IRA owner die before or after the "required beginning date"?
2. Who is the beneficiary?
In order to carry out the wishes of the IRA owner, evaluating both practical and estate planning implications of various decisions during the IRA owner's life is essential. Important choices occur when the IRA owner makes his beneficiary election and, if married, by the spouse after the death of the IRA owner.
If you do not know the rules as they pertain to your choices, you are shooting in the dark. The wrong decision can cost money and likely cause the distribution of your IRA to be different than you would want.
Let's make sure you know the rules of the game.
The first element is the required beginning date. For traditional IRAs, SEPs, SIMPLEs, this is Aril 1st of the year after turning 70 1/2. This rule does not apply to Roth IRAs, which have rules of their own.
There are several broad categories of beneficiaries:
1. The spouse.
2. A non- spouse beneficiary.
3. No beneficiary.
Let's take each of these beneficiary elections and see how distributions are treated, depending on whether the IRA owner dies before or after the required beginning date.
The Spouse as Beneficiary
If the spouse is the only beneficiary, he or she can make an election that has a bearing on when the distributions must begin. The election is to treat the owner's IRA as if it were their own.
Heads up: This election choice is unavailable if a trust is the beneficiary of the IRA, even if the spouse is the only beneficiary of the trust. A rollover may circumvent this problem.
If the IRA owner dies before the required beginning date, the spouse is the only beneficiary and the election made, the required distributions don't have to begin until the IRA owner would have turned 70 1/2. The spouse would probably elect to apply this rule if the IRA owner was younger.
If the spouse elects not to be treated as the owner, the required minimum distributions (RMD) start right away and are based on the remaining life expectancy of the spouse. When the spouse dies, the distributions continue using the remaining life expectancy of the spouse.
If the IRA owner dies after the required distribution date and the spouse does not make the election, the distribution must be made over the life expectancy of the spouse; however, the life expectancy of the IRA owner can be used any year it is greater. Taking the attained age of the IRA owner at death and looking in a table determines the life expectancy. Then each year you subtract one. The point here is that the spouse needs to make a comparison every year to obtain the longest pay out.
The "takeaway" from this is that knowledge allows for good decisions. The best choice will depend on how old the IRA owner is when they die, the age of the spouse, health status and whether or not there are children or grandchildren to provide for in a distribution.
Non-Spouse Beneficiary
Distributions are required over the remaining life expectancy of the beneficiary if the IRA owner dies before the required beginning date. If there is more than one beneficiary, the oldest is used.
Heads up: Let's say the IRA owner is a widow age 80. She names her sister, age 82, and her children, ages 55, 58 and 60 as beneficiaries. Her desire to help her sister causes the IRA to be distributed over the remaining life expectancy of an 82 year old-probably much quicker than desired.
If the IRA owner dies after the required beginning date, the distributions must be made over the longer of the remaining life expectancies of the owner or beneficiary.
No Beneficiary
If the IRA owner dies before the required beginning date, the entire IRA account must be paid out over five years.
If death occurs after the required distribution date, distributions simply continue over the remaining life expectancy of the IRA owner.
I think you can see there are a number of scenarios possible. When you combine this with the complexities of the IRA distribution rules, it makes good sense to sit down with your financial planner, tax attorney and accountant and make sure your IRA, SEP or SIMPLE IRA is coordinated with your estate plan and the most probable distribution pattern coincides with your desires.
Listed below are more articles related to the above article from the "Estate Planning" article category.
People interested in the above article "IRA Distribution Rules at Death: Critical Knowledge for Good Decisions" are also interested in the related articles listed below:
The real estate sector is a field that grown rapidly and also considers that it will be get mount in new future. If you are willing for properties in India, there are several real estate firm help you to finding best properties. Here you can get information about properties in India, home loans, home loans companies, etc.
Sickness and death are tragic realities that every family will need to deal with at some point. Too often, this planning goes neglected because the subject is difficult to deal with for many, or simply too confusing. Many consider "estate planning" to be only for the wealthy with sprawling country homes filled with valuable antiques and tapestries. However, this could not be farther from the truth. While most wealthy do have estate plans in place, they are also critical for those who are not wealthy, to ensure that their needs and desires are met in both sickness and health.
With over 20 years as a Temecula Valley and San Diego financial advisor, I have seen tremendous fortunes eaten by inheritance taxes. Recent legislation introduced a temporary estate planning option called "portability" which allows a surviving spouse the ability to utilize a previously unused portion of estate tax exemption from their deceased spouse. This new proposal could minimize the amount of estate taxes paid by married couples.
Forest owners who plan to develop around wetlands and streams on their property are doing themselves no favors when they fail to get the their clean water permits from federal agencies. Although it's tempting to tell yourself you might not need one, failing to get one exposes you to a variety of financial and legal risks.
Many charities will give you annuity payments if you make a donation. Your rewards from charitable giving need not be limited to a good feeling and a tax deduction. You can get cash back, too. Many charities offer charitable gift annuities. With a CGA, you give assets to a charity or nonprofit organization in return for a stream of cash flow.
Here's an estate-planning technique that allows you to lower the tax sting to your heirs, and that reduces your retirement income in case you don't think you will need all of your Individual Retirement Account funds in retirement. It's called a "stretch IRA," or "Multi-generational IRA," a complex investment tools that allow you to extend the tax-deferred status of your IRA long after your death.
Asset Protection is everyone's desire, but adults share a characteristic - that they may be sued at anytime, for any reason, whether founded or not. Civil actions range from the serious to the frivolous. Did you offend someone today with something you said? Did you cause someone to suffer sudden whiplash syndrome in the parking lot? Are you a professional facing a disgruntled client or patient? Do you own a company employing someone who did something irresponsible on company time? Did you err on the side of caution... or throw caution to the wind?
