Can You Include An IRA (Individual Retirement Account) In Your Estate?
You worked hard all your life at the same job, and continuously made contributions to an IRA to secure your retirement. The IRA has grown exponentially because it is a tax-deferred account and the owner does not have to take distributions until they are at least 70. Now there is more than enough in both accounts to see you through retirement, but you aren’t sure what would happen if you were to pass away suddenly. Your spouse has since passed, so could your children take ownership of both accounts? Is it as easy as just writing a provision in your will?
Transferring Retirement Assets
Unfortunately, no, in Florida you cannot just add your retirement accounts to your will and indicate the assets should be evenly divided upon beneficiaries. If the owner of the retirement account has a surviving spouse, he or she can roll the IRA into a new IRA, or they also have the option to merge the deceased spouse’s IRA into their own IRA account. Once doing so, the surviving spouse must name new beneficiaries for the combined IRA account. It is perfectly fine to name a child or grandchild as a beneficiary and actually makes sense, because they can continue to defer distributions and tax until the beneficiary reaches 70 years of age.
If the owner of an individual retirement account passed without a surviving spouse but before taking required distributions (i.e before the age of 70), a child or named beneficiary in the will can create a beneficiary IRA. They have two options for withdrawal of funds, taking a lump sum at once, or taking annual distributions based on the life expectancy option within five years of rolling the account into a beneficiary IRA. At least one distribution must be made within one calendar year of the original owner’s death. Non-spouse beneficiaries such as children cannot roll the IRA into their own IRA or make continued tax-free contributions to the account, only a surviving spouse can.
Other Options for Growing Inherited Wealth
While it makes sense to continue to contribute to an IRA tax free, you also want to take advantage of 401K accounts and your employer’s pension, if offered. Many pensions and 401K accounts will match whatever you contribute on a yearly basis, and you can name beneficiaries to both accounts should something happen to you. You may also contribute to a Health Savings Account tax free with tax free distributions. An HSA account can be inherited if you name the beneficiary on the account, such as your spouse. Otherwise the account is converted to a taxable account, and if a child beneficiary wishes to make contributions to the account it is not tax-deferred. If you allot for the HSA to be a trust asset, the transfer avoids probate but the transferred amount is still taxable.
Reach Out to Us Today for Help
As we grow older, our financial portfolio tends to get more complicated, which is a good thing. It means we have a good share of assets to depend on and share with our beneficiaries upon our passing. However, it is important to remember that not all investment and retirement vehicles are alike. Some accounts have specific provisions upon transfer you must keep in mind, and it is also crucial to name beneficiaries to any individual accounts you maintain such as an IRA or HSA account. If you have other questions specific to estate planning, contact our advanced estate planning attorneys at Millhorn Elder Law Planning Group. We serve clients throughout The Villages with all estate planning, administration and long-term care planning needs.