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TAX PLANNING: WHO TO NAME AS YOUR IRA BENEFICIARY
By Stephen J. Kahn, CPA

One of the most important decisions for owners of individual retirement accounts (IRAs) is the designation of a beneficiary. If an IRA owner dies without naming a beneficiary, the remaining balance in the IRA must be distributed within five years of the account holder’s death. However, if a beneficiary has been designated, that beneficiary will have certain options regarding how and when distributions may be taken.

Typically, IRA owners designate either their spouse or child (children) as beneficiaries. If the beneficiary is an IRA owner’s child and the account owner was already receiving minimum required distributions, the beneficiary generally must continue to receive the payments according to the same distribution schedule. However, if the account owner dies before selecting a distribution method, the beneficiary may have other options, including distributions over the beneficiary’s life, or over a five-year period following the account owner’s death.

There are many advantages to naming one’s spouse as beneficiary. For example, the value of the IRA, which would otherwise be fully included in the taxable estate of the IRA owner, is sheltered from estate tax by the marital deduction. Additionally, a spouse beneficiary can treat the IRA as his or her own, name a new beneficiary, and postpone required distributions until the spouse-beneficiary attains age 70-1/2.

IRA owners should give careful consideration to their choice of beneficiary. For more details regarding the important tax implications of designating the beneficiary of your IRA, please give us a call at 703.370.0019 or email us at information@kahncpa.com. We can explain the options available to you and help you make the best choice for your particular circumstance.

(Stephen J. Kahn is a Certified Public Accountant and an Alexandria resident. The reader is cautioned that this information may not be applicable to the reader’s specific circumstances or needs. The reader should contact a tax professional prior to taking any action based upon this information. Stephen J. Kahn, CPA assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information herein.) 

 

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