In creating your estate plan, one key opportunity to build family wealth is to properly plan for your Individual Retirement Account (IRA) distribution upon your death. Your IRAs grow free of any income taxes, which allows for tremendous growth for you and your family over the years. Good planning with your IRA can essentially create a “private pension” for your family, giving your children and grandchildren years to enjoy these assets.
Upon your death, your IRA is generally paid directly to the named beneficiaries thereon. The beneficiaries can roll over the IRA into their own inherited IRA, which allows them to take this money out over their lifetime. This IRA “stretchout” is a wonderful thing because of the continued ability of the IRA funds to grow tax free. Your hundreds of thousands of dollars can grow to millions of dollars under these circumstances.
One problem with distributing the IRA outright to a child is that most beneficiaries do not actually use the IRA “stretchout.” Many children “blowout” the IRA, taking all the money out of the IRA upon your death, not allowing it to continue to grow tax free. It is estimated that 87% of all beneficiaries take money from their inherited IRA too quickly, completely blowing the growth opportunities. The correct estate planning, however, can generally prevent this from happening.
Leaving the funds to an IRA Inheritance Trust essentially provides your children with a private pension for their lifetimes, allowing your children to receive income until they die and leaving the remaining funds to their children. In this day and age, pensions are few and far between. The IRA Inheritance Trust will allow a steady income stream to your children with the following benefits:
- Professional money management for heirs
- Divorce protection from spouses
- Spouse or others may press your child to withdraw the IRA money
- Protection for minor children/grandchildren
- Lawsuit, creditor, and bankruptcy protection
- Helping children who may spend their money too fast
- Learn how a $250,000 IRA could distribute more than $1 million to you and your children over your lifetime
- Learn how a $250,000 IRA could distribute more than $3 million to you and your grandchildren over your lifetime
IRA Inheritance Trusts have not been around for a long time, so this is a new concept you may not have heard about. If you want to help your children and grandchildren with the wonders of tax-free investment growth, please see us on creating an IRA Inheritance Trust.