For many retirees, their IRA represents a significant portion of their wealth. IRA legacy planning helps ensure these assets are passed to your beneficiaries in the most tax-efficient manner possible.
Why IRA Legacy Planning Matters
Without proper planning, your heirs could face significant tax consequences when inheriting your IRA. The SECURE Act of 2019 changed many of the rules around inherited IRAs, making planning more important than ever.
Key Considerations
Beneficiary Designations
Your IRA beneficiary designation supersedes your will. Keeping these designations up to date is crucial to ensuring your assets go where you intend.
Eligible Designated Beneficiaries
Under current rules, certain beneficiaries—including surviving spouses, minor children, disabled individuals, and those not more than 10 years younger than the deceased—have special options for inherited IRAs.
The 10-Year Rule
Most non-spouse beneficiaries must now withdraw all inherited IRA funds within 10 years, which can result in significant tax consequences.
Roth Conversions
Converting traditional IRA funds to a Roth IRA can provide tax-free inheritance for your beneficiaries, though you pay taxes on the conversion.
Strategies to Consider
Spend Down Taxable Accounts First
Preserving tax-advantaged accounts while spending taxable accounts can maximize the inheritance you leave.
Strategic Roth Conversions
Converting some traditional IRA funds to Roth while you're in a lower tax bracket can reduce the tax burden on your heirs.
Charitable Beneficiaries
Naming a charity as a beneficiary of your IRA can provide tax benefits while supporting causes you care about.
Trust Planning
In some situations, naming a trust as your IRA beneficiary can provide additional control over how the assets are distributed.
Coordinate With Your Estate Plan
IRA legacy planning should be coordinated with your overall estate plan. We work with your estate planning attorney to ensure your IRA strategy aligns with your broader goals.