Tax Implications Of Inheriting An IRA
High earners, especially those who do not have the benefit of pensions or 401(k) accounts, often accumulate sizeable individual retirement accounts (IRAs). When an IRA owner dies, the beneficiaries may inherit not only a large sum of money, but also a big tax problem in the form of estate taxes and IRA minimum distribution requirements.
The estate and tax planning lawyers of Cushing & Dolan, P.C., can help individuals, and their beneficiaries, plan for this dilemma — or deal with it after the fact. We advise clients in Greater Boston, and surrounding areas of Massachusetts and New Hampshire. Arrange a consultation today.
Required Minimum Distributions For Traditional And Roth IRAs
IRAs are considered part of one’s taxable estate for state and federal estate tax purposes. A surviving spouse can rollover the IRA without an immediate penalty or tax consequence, but, ultimately, the tax burden will fall to those who inherit.
Upon the death of the IRA owner, beneficiaries must also take annual minimum distributions from the IRA, which can result in a substantial income tax liability. Cushing & Dolan can help clients structure an IRA inheritance, through various types of trusts and strategies , to stretch an IRA over the beneficiary’s life expectancy. This limits the forced tax on mandatory distributions and preserves the asset for a longer period of time, even the next generation.
Our tax attorneys have extensive knowledge of individual retirement accounts and the estate planning and tax planning options and implications. We regularly counsel doctors, lawyers and other professionals, as well as business owners, executives and independent contractors who have amassed substantial IRA wealth.
Working closely with our clients’ financial advisors, we can internally handle all the nuts and bolts of establishing and funding trusts for IRA purposes, including beneficiary language, disclaimers and changing names on accounts. We can also explore generation-skipping IRA solutions to minimize the estate tax consequences for your immediate heirs.