Introducing the IRA Inheritance Trust! (Part 1)

IRA Inheritance Trust Stretch OutYou may know the difference between a Last Will & Testament and a Revocable Living Trust, but did you know there is a special trust specifically for retirement accounts?

Don’t make the faulty assumption that your Revocable Living Trust will work just as well for your retirement accounts as it does for your non-retirement accounts.  Due to the special rules and regulations governing retirement accounts, the IRA Inheritance Trust is a must-have for individuals or spouses with a combined value of $200,000.00 or more in retirement assets.  Why is this?

Well, an IRA Inheritance Trust can take a $200,000.00 retirement account and turn it into $1,000,000.00 for your beneficiaries!  Unfortunately, most beneficiaries simply cash out your retirement accounts once you have passed, unwittingly facing huge income tax penalties that may cause them to lose up to half of the retirement account’s value.  However, with an IRA Inheritance Trust, you can (1) require that your beneficiaries take advantage of a “stretch-out” over their life expectancy of the retirement account’s value and (2) provide asset protection for that inheritance.  Today’s blog will focus on the first issue and my blog later this week will address the second issue.

As stated previously, many beneficiaries, upon inheriting a retirement account, will simply contact the institution and request that the retirement account be liquidated and the money distributed to them.  This is a big mistake.  The value of the retirement account that they receive is taxable income to them in full.  Moreover, this taxable income very likely will jump the beneficiary into a higher tax bracket for that year, if not the highest tax bracket altogether.  This could result in almost half the value of the retirement account inheritance being payable to Uncle Sam for income taxes, which is disastrous in and of itself, but especially if the beneficiary has already spent their inheritance and doesn’t have the money to pay the taxes (which is altogether likely, based upon numerous studies).

If a beneficiary asks the right questions, they may be able to spread the retirement account inheritance over a five-year period so as to lessen the tax consequences.  However, very few beneficiaries will be aware of the fact that if properly done, they have the opportunity to “stretch-out” their retirement account inheritance over their own life expectancy.  By taking advantage of this opportunity, the retirement account can continue to be invested and compound tax-deferred with only required minimum distributions being taken out over your beneficiary’s life expectancy, resulting in compounded tax-free growth and less income taxes being due each year distributions are taken.

The result?  A legacy that you can provide to your children and/or grandchildren that could be worth a million dollars or more in the end!  By establishing an IRA Inheritance Trust, you can ensure this result for your family and make them IRA Millionaires!

If you’d like to learn more about the IRA Inheritance Trust and whether it is appropriate for your family’s needs, please contact our office and we’d be delighted to meet with you and discuss the opportunity!

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