Michigan Estate Planning – Who Should Be The Beneficiary Of Your IRA? Part 1

How would you like to turn your modest tax-deferred account into millions for your family? Depending on whom you name as beneficiary, you can keep this money growing tax-deferred for not only your and your spouse’s lifetimes, but also for your children’s or grandchildren’s lifetimes. That can turn even a modest inheritance into millions.

When preparing your estate plan, you should take some extra time to analyze your beneficiary designations and coordinate them with your overall estate plan.  You have five basic options as beneficiaries: Your spouse (if married); your children, grandchildren or other individuals; a trust; a charity; or some combination of the above. 

Over the next few weeks, I will talk about these options and discuss the advantages and disadvantages of each.

But let’s start with some IRA basics.  When you reach a certain age, usually April 1 after you are 70 1/2, Uncle Sam says you must start taking some money out. (This is called your required beginning date.)  But if you do not use all this money before you die, naming the right beneficiary can keep it growing tax-deferred for decades.

Calculating the amount you must withdraw each year (your required minimum distribution) is much easier now than it used to be.  Each year, you divide the year-end value of your account by a life expectancy divisor from the Uniform Lifetime Table (provided by the IRS). The result is the minimum you must withdraw for that year.  You can always take out more.  For example, the divisor at age 70 is 27.4. If your year-end account balance is $100,000, you divide $100,000 by 27.4, making your first required minimum distribution $3,650. Each year the divisor is smaller, but it never goes to zero.

Stay tuned for Part 2:  Next up is the discussion of the advantages and disadvantages of IRA spousal rollovers.

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One Comment on “Michigan Estate Planning – Who Should Be The Beneficiary Of Your IRA? Part 1”

  1. Matt Says:

    Excellent information Glenn. I look forward to reading the updates to your blog.

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