inheritsuccessor

Inheriting an IRA: Planning Techniques for Successor Beneficiaries MontGuide 200309 Marsha A. Goetting, MSU Kristen G. Juras, School of Law, University of Montana Revised 2003 Marsha A. Goetting MSU Extension Family Economics Specialist P. O. Box 172800 Montana State University Bozeman, MT 59717 406-994-5695 6 MontGuides 1. Individual Retirement Accounts 2. Shopping for an IRA 3. Withdrawals from IRAs  When owner is under 59 ½  When owner is between 59 ½ & 70 ½; turns 70 ½ 4. Inheriting an IRA: Planning techniques  Primary beneficiaries  Successor beneficiaries Individual Retirement Accounts • www.montana.edu • Search: • Individual Retirement Accounts IRA Tax Law Changes • Economic Growth & Tax Relief Reconciliation Act of 2001 If primary beneficiary dies before withdrawing entire IRA balance…... • RMD must continue to be paid to successor beneficiaries Planning Technique: • Designate successor beneficiaries on IRA contract rather than naming them in will Why??? • IRS does not consider devisees (by will) or heirs (no will) as “qualified designated successor beneficiaries”!!!!!!! What if IRA owner dies without designating a successor beneficiary? • Terms of IRA Contract determines Contract Terminology • Heirs at law • Payable to primary beneficiary’s estate • May grant primary beneficiary right to determine successor beneficiary “Designated Beneficiary” • Successor beneficiary: If any of my three children should predecease me, or if any of my three children should die before receiving his/her share of this IRA in full, the deceased children’s share shall be distributed to the deceased child’s descendants by right of representation. Question #10 • What will this grandchild inherit by right of representation from Grandma & Grandpa’s IRA? $180,000 IRA Grandpa Grandma Son Daughter Parents have 3 children HUSBAND WIFE Son Son Son Son Son Daughter Daughter Daughter Son Survivors : 3 children HUSBAND W IFE 1/3 S on 1/3 S on S on D au g h ter 1/3 D au g h ter S on Survivors : Two children & grandchild of deceased son H U S B AN D W IFE Son 1 /3 S on S on D a u g h te r 1 /3 D a u g h te r 1 /3 S on Survivors : One child & grandchildren HUSBAND W IFE Son Son 1 /3 D a u g h te r D a u g h te r 1 /3 1 /6 1 /6 S on Survivors : One child & grandchildren--$20,000 HUSBAND W IFE S on 1/3 S on S on D au g h ter 1/3 1/9 1/9 1/9 Survivors : Grandchildren HUSBAND W IFE Son Son Daughter 1/6 1/6 1/6 1/6 1/6 1/6 Single person Bachelor Sister Brother Sister Brother Brother Niece Nephew Nephew Single person Bachelor Sister Brother Sister Brother 1/4 Brother 1/4 Niece Nephew Nephew 1/4 1/8 1/8 More than one successor beneficiary • Divide IRA in separate accounts • By September 30 of year following death Why??? • Each beneficiary can use own life expectancy in determining RMD payable “Designated Beneficiary” • Joan Young has IRA • Primary beneficiary: My husband, Steve Young Successor beneficiary: • In equal shares to our two children, Jennifer Anderson & Richard Young. If either of them should die before receiving his/her share of this IRA in full, the deceased child’s share shall be distributed to the deceased child’s descendants, by right of representation. What if? • Steve rolls over wife’s IRA into his own • He determines beneficiaries, not Joan Death of Primary Beneficiary • In situations not governed by spousal roll over rules Calculating RMD for Successor • Primary beneficiary’s remaining life expectancy continues to be used to determine RMD payable to successor. Beneficiaries Mother Nancy Primary Son, Kyle Successor Grandson, Conner Nancy dies • IRA balance when Nancy died, age 76, in 2018 • $100,000 • RMD Year 1 for Kyle (2018) • $100,000  12.7 = $7,874 12.7 reduced by 1.0 each year for RMD • • • • • • Age 2019 2020 2021 2022 2023 Balance IRA $$$ IRA $$$ IRA $$$ IRA $$$ IRA $$$ Factor 11.7 10.7 9.7 8.7 7.7 Planning Technique!!! • Multiple Beneficiaries • Separate accounts by September 30 of year following death of IRA owner Planning technique for nonindividual beneficiaries • Family • Charity  4-H Foundation  Community Foundation  MSU Extension Planning Technique • Distribute account to charity before September 30 • Then, family beneficiary can use life expectancy for withdrawals Disclaimers • Beneficiary can disclaim IRA interest Disclaimers • In writing • Earlier of • 9 months after date of death or, • September 30 Inheriting an IRA: Planning Techniques for Successor Beneficiaries MontGuide 200309 Marsha A. Goetting, MSU Kristen G. Juras, School of Law, University of Montana Revised 2003