Previously, we covered the facts and information about beneficiaries related to the SECURE Act. After the SECURE Act, there are a number of planning strategies to help minimize the tax burden beneficiaries may have.
Name a Charitable Remainder Trust as a beneficiary
One solution is to name a Charitable Remainder Trust as a beneficiary. It could be a great solution if the participant is charitably inclined, has a large amount of retirement assets, and wants to defer income taxation for the beneficiaries as long as possible. It’s important that this type of plan only be done by someone experienced in charitable planning.
“Roth” the IRA
Another solution is to “Roth” the IRA. “Rothing” an IRA means converting a traditional IRA or 401k into a Roth IRA. Doing this would allow beneficiaries to get a maximum deferral and take distributions in the 10th year without paying any tax. Without a Roth, beneficiaries would need to spread their distributions over several years to avoid a possible spike in income tax rates.
Use distributions from an IRA
Another solution, is to use distributions from an IRA to pay premiums on life insurance. This could be done with a personally owned policy or using an Irrevocable Life Insurance Trust. Generally, life insurance proceeds received by a beneficiary under this scenario wouldn’t be included in their gross income and wouldn’t be subject to income tax.
Leave the IRA to an “eligible” beneficiary
Another solution is to leave the IRA to an “eligible” beneficiary who isn’t subject to the 10-year rule, and who could stretch distributions over their life expectancy. An IRA owner could then leave other assets (non-IRA assets) to a non-eligible beneficiary who is subject to the 10-year rule. For example, leave the IRA to the spouse and the home to the adult children.
Leave the IRA to a qualified charity
Finally, one last solution may be to leave the IRA to a qualified charity and leave other (non-IRA assets) to your loved ones. Sun Health Foundation’s Generosity for Generations Campaign is one example.
Planning for IRAs can be very complicated. It is important to seek guidance from a qualified estate planning attorney that can help navigate this complex area of the law. For more information about other trusts and how to make a charitable impact in your community, click here.
Author: David Thomas Eastman, estate planning attorney and partner with Morris Hall, PLLC, in Surprise, Arizona. Passionately helping clients protect their legacies for 50 years in Arizona, Morris Hall is a Premier Estate Planning Law Firm that provides quality legal services for Arizona and New Mexico clients. The firm has helped thousands of people who are concerned about protecting their families from the devastating effects of disability and death. Morris Hall is ranked in the top 5% of all U.S. law firms by Martindale-Hubbell and is a member of the American Academy of Estate Planning Attorneys.
