At first glance, the concept of an Individual Retirement Account (IRA) seems simple enough: a structured way to save for your golden years while deferring taxes on your growing nest egg. Unfortunately, that simple idea becomes one of the most complex areas of estate planning once IRS rules are applied. That means that not only must an estate planner consider estate tax reduction techniques, but also the amazingly complicated income tax rules the IRS has issued in its Proposed Regulations. Do not let the term "proposed" concern you. The agency issued the Proposed Regulations in 1987 and has told taxpayers they may rely on the rules until Final Regulations are issued. This report is intended to provide general guidance on the income and estate tax considerations involved. It is not intended as legal advice. Only an analysis of a client's particular financial and family considerations provides a sufficient foundation for an estate planner to make appropriate planning recommendations.
CONSIDER THE COMPLEXITY AND UNCERTAINTY OF THE RULES
As will be discussed in the following sections of this Report, there is considerable complexity and uncertainty in determining how the IRS and your particular IRA administrator will manage the issue of taxation in the case of the death of the owner. Some plan administrators require withdrawal of the IRA balance within a period of 1 to 5 years, even though the IRS might allow 20 years. You should consider that uncertainty when making your estate planning decisions.
As an example, if you simply name your spouse as the beneficiary of your IRA, you and your spouse can be assured of the maximum income deferral benefits for each of you. However, that form of planning may increase the estate taxes on your children.
Click below to learn more about Individual Retirement Accounts from the following sections:
- STEPS IN THE PLANNING PROCESS
- ESTATE TAX PLANNING
- REQUIRED MINIMUM DISTRIBUTION RULES
- HOW MUCH MUST MR. SMITH WITHDRAW?
- USING TRUSTS AS THE IRA BENEFICIARY
- IRA DISTRIBUTIONS TO A BENEFICIARY
- INCOME TAX CONSIDERATIONS WHEN NAMING A TRUST AS THE BENEFICIARY
- ROLLING OVER AN INHERITED IRA
- PLANNING UNDER UNCERTAINTY
