Are you ready for the Great Wealth Transfer? By some reports, 45 million Baby Boomers are expected to transfer over $68 trillion in wealth to the next generation in the coming 25 years. Increasingly, a larger portion of this wealth can be found in IRAs. Those dollars in motion represent an opportunity for proactive advisors who know how to move retirement assets to heirs in the correct and most tax efficient manner.


1. Maximize the Stretch IRA: Most beneficiaries who inherit an IRA will probably want to leave the assets in the account to grow for as long as possible. Plus, if the inherited IRA is full of pre-tax monies, distribution to a beneficiary will be taxable as ordinary income. How can a beneficiary minimize taxes and leave inherited dollars in an IRA for as long as possible? By leveraging one of the biggest breaks in the tax code…the stretch IRA! Despite rumors of its possible demise at the hands of Congress, this powerful strategy is still with us. For the stretch IRA to be available, there must be a “designated beneficiary.” That means the IRA owner must name a living, breathing individual or a qualifying trust on the beneficiary form. When this is done, beneficiaries can take required minimum distributions (RMDs) over life expectancy using the IRS Single Life Expectancy Table. For example, a thirty-year-old beneficiary could stretch out RMDs for 53.3 years. An estate cannot be a designated beneficiary. Beneficiaries who inherit through the estate will lose out on the stretch and may even be stuck with the dreaded five-year payout rule.

2. Name a Trust as IRA Beneficiary: Do your clients have heirs that maybe aren’t so trustworthy with money? Would your client like to leave IRA assets to spendthrift heirs, but is concerned they might squander hard-earned retirement savings? There is a way to control distributions to heirs and still take advantage of the stretch IRA. A client can name a properly designed qualifying trust as their IRA beneficiary. Notice it says, “properly designed.” When the trust rules intersect with the IRA rules, things can get complicated. The quickest way to foul up a beneficiary payout is to establish the wrong trust with the wrong wording. Advisors need to understand the “look-through” rules that must be satisfied to allow a stretch when a trust is the beneficiary of an IRA. Make sure your advisory practice is “trustworthy” when it comes to retirement savings!

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