Volume 19, Number 7

The Bridge


Financial Information
Catherine Scrivano CRPC, CRC, CEP

My bag.

If you died yesterday would you be absolutely sure that your IRA would do exactly what you want it to do?

Trillions of dollars in assets will be transferring from one generation to the next in the next 20 years. These assets will pass to heirs, charities, and sometimes, your least favorite relative, Uncle Sam. How do we pass on those dollars efficiently?

New rules make distribution less complicated during your lifetime and potentially, during the lifetime of your spouse. These rules also help control the tax that is paid on these distributions. However, a non-spouse beneficiary has fewer choices. Adverse income tax implications can be avoided through planning by the IRA owner during his or her lifetime.

One technique that might be beneficial is to convert a portion of a traditional IRA to a ROTH IRA, sometimes over a period of years. While there are tax consequences to the owner, the tax-free distribution to the beneficiary may make it worth consideration, depending on each person's tax situation.

Another option is to use distribution proceeds to fund life insurance, which is used to pay taxes and may provide a larger inheritance than the IRA would have provided. In some cases, a trust is created to own the life insurance.

It is not uncommon for the IRA owner to have several children or grandchildren as beneficiaries. It is also not uncommon for those beneficiaries to have different needs or competence with regard to money. It is sometimes prudent to set up more than one IRA, with each beneficiary named separately on each. This allows the distribution to be treated differently for each beneficiary; some custodians allow the IRA owner to determine how the beneficiary will receive the proceeds. For instance if one heir is very good with money while one is a spend thrift (or maybe married to a spend thrift!), the owner can designate that the first beneficiary will receive a lump sum, while the second is to receive funds over a specific period of time.

As always, these ideas are presented for your consideration but the applicability will vary from person to person. Please consult with a qualified advisor and consider these ideas as one part of a full financial plan.