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Millhorn Elder Law Planning Group
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Passing On Your Retirement Accounts After Your Death


Retirement income can sometimes be forgotten when it comes to estate planning. Employer retirement plans and IRAs can often be a large portion of a person’s assets after he dies. Retirement accounts are handled differently than other assets, and there are rules governing what a beneficiary of a retirement account can do upon receiving the account.

Initially, it is important to point out that, like life insurance policies, retirement accounts are passed on to beneficiaries by designation. This means that whether it is an employer plan or an IRA, the person opening the account or contributing to it is required to designate a beneficiary who will receive the retirement income in the account upon the principal’s death.

With some accounts, it is possible to designate more than one beneficiary, and even more than one class of beneficiaries. For example, it is possible to leave half of the account to your spouse, and the other half to two other beneficiaries who receive equal shares. A trust may also be named as a beneficiary. This may vary for employer retirement plans, and it is important to find out the restrictions of your particular plan.

Beneficiaries who are inheriting tax deferred retirements accounts are also liable for income taxes on the amount of money they withdraw from the account in any given year. Penalties for early withdrawal may also apply to beneficiaries who withdraw funds before reaching a certain age. While this may not be as damaging in Florida as in other states whose residents pay state income taxes, it is still something to consider as federal income taxes would still apply.

Beneficiaries who are not surviving spouses are also limited in the amount of time within which to take their first distribution from an inherited IRA in order to have better options for future withdrawal. If done correctly, distributions from an inherited IRA can be very lucrative to a beneficiary after many years of additional tax deferred growth.

Spouses who inherit IRA accounts have more flexibility in how they handle the account. They have the choice to change the account into their own account, making themselves the account owner as opposed to a beneficiary. A spouse who inherits an IRA can also roll into her own existing IRA or other qualified account. This would allow the spouse to continue contributing to the account, and not have to withdraw the funds within a certain time after the original owner’s death.

Another advantage for a beneficiary receiving an inherited IRA is the opportunity to claim an income tax deduction to offset estate taxes paid on the IRA. This is particularly beneficial if the estate of the deceased is valued at more than $5.49 million, the threshold for federal estate taxes in 2017. Florida does not have an estate tax.

Contact an Experienced Attorney

If you are interested in learning more about how you can best distribute your retirement income to leave the least burden to your beneficiaries, you should consult with an experienced estate planning attorney. Contact our experienced estate planning attorneys at the Millhorn Elder Law Planning Group located in The Villages, Florida.




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