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Estate planning and the multi-generational IRA

You probably already know that an IRA is an individual retirement account. A multi-generational IRA is an individual retirement account that allows you to leave money to beneficiaries after you die.

Multi-generational IRAs, also known as extended or stretch IRAs, are useful for high-asset individuals who will not use up their savings during the retirement years and would like to pass the remaining balance to beneficiaries. However, there are complicated rules and tax implications that apply.

For example, the beneficiaries have to make sure that they receive the required minimum distributions each year or face a serious penalty. Another issue to consider is that the beneficiaries still must pay income taxes on the distributions that they receive, which can be costly.

However, with estate planning tools, it’s possible to transfer the remaining balances of IRAs to beneficiaries while minimizing the tax burdens that usually apply. There are a couple ways to do this. One is by spreading out the income distribution over a longer period of time.  Another is by transferring the funds into a generation-skipping trust and avoiding the tax burden altogether.

Because there are many complicated laws involved -- both governing IRAs and taxes -- it’s extremely important to work with an experienced estate planning lawyer who can minimize the tax burdens on your beneficiaries while making sure you are still following the law.

Our firm has been handling this situation and others for high-asset clients in Massachusetts for many years. To find out more about how we have helped clients in this situation as well as our other estate planning services, please visit our Multi-Generational IRA Planning page.

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