IRA Accounts and Beneficiaries

[S T]

I know that we can not offer "legal advice", - I would be interested in knowing thoughts relating to Taxation on IRA Accounts - Pros and Cons

1. Beneficiary Named Individual/s - such as Adult Children, or other Adults

2. Beneficiary Named would be in "The ****Family Trust, etc.

3. Beneficiary Names as "Estate of"

Thanks,

Sandy

[Kram BergGold]

My view

Everything I have read says you make individuals the beneficiary. If the beneficiary is a trust or estate you lose some of the options on how to take the distributions.

[Bees Knees]

Well, it is true that if the beneficiary is a trust or an estate, the RMD rules require the taxable distributions to come out of the IRA sooner than if an individual were named as beneficiary (see TTB, page 13-24 under "Beneficiary not an individual).

Having said that, there are a number of reasons why you do not want to name an individual as the beneficiary.

1) If you don't have any kids and want your money to go to charity, you name the charity as the beneficiary. Even though the IRA must be distributed within 5 years from the date of death, the charity does not pay tax on the distribution because a charity is a tax-exempt organization.

2) If you don't trust your irresponsible adult kids to do the right thing with your money, you name a trust as the beneficiary. Even though the money gets taxed sooner, you don't care because you are dead. Your irresponsible adult kids get the after tax money when you say so (through the terms of the trust). It is a way for you to continue to have control for many years to come over your adult kids from the grave.

3) Often times the estate is named as the secondary beneficiary after an individual. The reason is if the beneficiary dies before the IRA account holder, and the IRA account holder did not name a new individual beneficiary before his or her death, then the estate has until September 30 of the year following the year of the IRA owner's death to designate a new beneficiary by looking at the decedent's will to determine who is entitled to inherit the IRA.