IRA’s and Estate Planning

IRA’s are increasingly becoming an important part of estate planning for middle class families, particularly those who have worked and saved their whole lives. Sometimes, you will need to live off of the income of your IRA in retirement, but sometimes you will have other sources of income that cover your life expenses.

When your IRA isn’t needed to live on during retirement, it can present great estate planning opportunities for you and your family. You can structure your IRA to leave a pension for life for your kids or grandkids, while allowing the IRA to grow tax-deferred, or if it’s a Roth IRA, tax-free.

To make sure the IRA stays safe and allows for maximum growth, an IRA Inheritance Trust is necessary to accomplish this goal.

How do you know if you need this kind of trust? Here are a few factors to consider when thinking about whether you might need an IRA Inheritance Trust:

  • Size of IRA: Is your IRA worth at least over $500,000? If so, it may be a sign you should consider a trust.
  • How many beneficiaries? If each beneficiary (a kid, grandkid, etc) may get $500,000 or more each out of your IRA, then you should consider a trust.
  • Ages of beneficiaries: If you are leaving the IRA to several people, some older and some younger, it’s important to establish the IRA trust so that each share can be measured on his or her own life expectancy. The younger the beneficiary, the higher the life expectancy and the lower the RMD. The lower the RMD, the more ability the IRA has to grow and "stretch" out over time.
  • Issues and challenges for beneficiaries: Are your beneficiaries spendthrifts? Are they too young for you to know if they might turn out to be? What about creditor problems, bankruptcy issues, special needs, divorces and more… These are all reasons that you want to protect and shelter the IRA in a trust for beneficiaries.
  • Your goals: Depending on your estate planning goals and the factors above, an IRA Inheritance Trust may or may not make sense for you. It’s best to consider whether you need this type of trust with a qualified attorney who is analyzing your entire estate plan. This is simply one tool in the toolbox that can be used to effectively plan with certain cases.