Planning for the distribution of IRA assets

According to the Centers for Disease Control and Prevention, the current life expectancy in the U.S. is roughly 78 years. Additionally, a recent Gallup poll revealed that the average retirement age in the U.S. is 62. This means that, on average, an individual must ensure that he or she has enough retirement savings to account for both the planned and unplanned events during the 16 or so years after he or she retires.

One of the most effective options for building up retirement savings is an Individual Retirement Account or IRA. While all types of IRAs have contribution caps, all also offer important tax breaks which can add significantly to an account’s value. As with all investment and retirement accounts, it’s important to take steps to account for the distribution of any remaining assets upon one’s death.

Most married individuals choose to name a surviving spouse as a beneficiary of an IRA. A spouse who inherits the assets in an IRA can choose to rollover the assets into his or her own name and he or she then becomes the plan’s owner. With this option, any assets withdrawn from the IRA before the plan’s owner turns 59.5 carry a tax penalty.

Alternatively, a surviving spouse can be named as a beneficiary and inherit IRA assets as a non-spouse. This option allows the surviving spouse to take “minimum distributions annually from the IRA and let the remainder grow tax-deferred,” and distributions taken are taxed as income.

In other cases, an IRA plan owner may choose to leave assets held in an IRA to a trust and name a child as a beneficiary. This may be a good option for an individual who has a considerable amount of assets or who is remarried and wants to protect the financial security of a surviving child or children from a previous marriage.

With all three of these options, there are strict requirements and provisions that must be followed. It’s crucial, therefore, to consult with an estate planning professional.

Source:, “Estate Planning for Tax-Deferred Investments,” Alexandra Smyser, Oct. 30, 2015

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