Can You Leave an IRA to a Beneficiary?

Book an Initial Call

Can You Leave an IRA to a Beneficiary?

Conversations about death and legacies aren’t always easy. However, defining what matters most to a person is a good way to start estate planning. IRAs can play an important role in estate planning and legacy creation, as discussed in a recent article entitled “IRA Gifts at Death” from The Street.

Let’s say someone has a large portion of their assets in an investment account, a Roth IRA and a traditional IRA. If they want to avoid having their estate go through probate but aren’t in love with the idea of building trusts, they need to be sure their IRAs have beneficiaries. At their passing, the assets will flow directly to the beneficiaries.

Make sure that at least one living beneficiary is on the account. If the primary beneficiary is a spouse, be sure to also have contingent beneficiaries, or designate the beneficiary as “per stirpes,” which means if the named beneficiary passes before the account owner, their share of the assets automatically passes to their lineal descendants.

If there’s no valid beneficiary, the contents of an IRA of any kind could end up in the probate estate, creating a nightmare for heirs.

If an intended beneficiary is a charitable organization, passing an IRA is a powerful giving strategy. The organization must be a 501(c)(3), a tax-exempt organization. When IRAs are passed to the charity, the charity doesn’t pay taxes on the gift.

Individual beneficiaries do have to pay taxes on assets received from traditional IRAs, and when and how much they pay depends upon their relationship to the IRA owner. If the recipient is not the spouse, not a minor and not a disabled adult, the heir will need to take taxable withdrawals from the traditional IRA over the course of ten years from the date of death of the original account owner. Some people take a set amount annually, so they can plan for the taxes due. For others, a low-income year is the time to take withdrawals, since their tax bracket may be lower.

Another IRA distribution strategy is to divide IRAs into separate accounts, allowing for increased control over the amount of assets passing to a specific beneficiary. One IRA could be used for your charitable giving, while another IRA could be used to benefit family members.

Changing beneficiaries on your IRA is relatively easy. Checking on beneficiary names should be done every time you review your estate plan, which should happen every three to five years. Your estate planning attorney will be able to help determine the best strategy for your IRAs. Generally speaking, traditional IRAs are best to gift for charities. Roth IRAs are best to gift to family or loved ones. This is because the money in a Roth IRA is inherited tax free and can remain tax free for a number of years.

Reference: The Street (July 17, 2022) “IRA Gifts at Death”

Book an
Initial Call

Book an
Initial Call

Schedule a time to speak with an attorney at Nickerson Law Group
Book an Initial Call

Watch Our
Videos

Watch Our
Videos

Our videos cover Estate Planning for Families, Laureate Planning, Estate Administration, Family Counselor Program, and more.
Learn More

Read Our
Blog

Read Our
Blog

Our daily blog on Estate Planning for Families, Laureate Planning, Estate Administration, Family Counselor Program, and more.
Read Our Blog
Austin office:

3801 North Capital of Texas Highway
Suite J220
Austin, TX 78746

Our Georgetown Office

(By Appointment Only)
4506 Williams Drive, Suite 115
Georgetown, TX 78633

Contact Us
Integrity Marketing Solutions - Estate Planning Marketing
Powered by
cross