How to Leave IRA Assets to a Beneficiary

2016 Finances March 2016 Yann Kostic

By Yann Kostic from the March 2016 Edition

If the income from your individual retirement accounts (IRAs) turns out to be more than you actually require in retirement, and you’re looking for ways to pass on some or all of your IRA assets to your heirs, you’ll need to make some choices.

The first required minimum distribution from your traditional IRA must be taken by April 1 of the year following the year you reach age 70½, and annual distributions must continue to be made by December 31 of that year and in each following year.

The calculation to determine the required minimum distribution can be based on your single life expectancy or the joint life expectancy of you and your beneficiary (either spouse or non-spouse). So first, consider and designate a beneficiary.

The single life expectancy method generally provides for the largest distributions and highest potential taxable income. In general, it is most appropriate if you plan to withdraw most of your IRA during retirement, because it increases the potential that you will deplete the account during your lifetime.

The joint life expectancy with a spouse beneficiary method can reduce your required minimum distribution and current taxable income, and can increase the potential for tax-deferred growth. Also, when you die, your spouse generally has more options for timing distributions.

The joint life expectancy with a non-spouse beneficiary method may reduce your required minimum distributions even more than when your beneficiary is a spouse-but because the beneficiary may be a child or grandchild, it may be most appropriate if you wish to maximize tax-deferred growth and leave a legacy for your heirs.

The choice you make will affect the size of the distributions, your taxable income, the amount left in the account to continue growing tax- deferred, and the amount the IRA holder or beneficiary may leave to heirs. Your advisor can help you decide which choice is best for you.

NOTE: The legal and tax information contained in this article is merely a summary of our understanding and an interpretation of some of the current tax laws, and is not exhaustive.

Yann Kostic is an investment advisor (RIA) and money manager with Atlantis Wealth Management who specializes in retirees (or soon to be), self-reliant women and expats in Mexico. Atlantis is working with an international custodian, so firm clients are allowed to hold multiple currencies in a single account including Canadian & US dollars as well as Mexican Pesos. Yann is splitting is time between Central Florida, Lake Chapala and Manzanillo. Comments, questions or to request his newsletter, “News you can use” contact him at in Mexico, (376) 106-1613 or in the US (321) 574-1521.

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