For my mom's IRAs, we asked her to make the grandchildren her beneficiaries and they have rolled over the accounts into inherited IRA accounts. The main tax benefit of choosing the grandchildren is that the required minimum distributions (RMDs) are based on their remaining life expectancy, which is about 75 years. So only about 1/75th of the account needs to be withdrawn this year. (For reference, here is an RMD calculator for inherited IRAs. Because the amount will be much less than the $950 standard deduction for children with unearned income, no taxes will be owed on the RMDs for 2012.
Based on this experience with my mom's estate, I've checked and confirmed that my spouse and I both have designated beneficiaries for all our retirement accounts.
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This is not financial or retirement account advice. Please consult a professional advisor.
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