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Leaving An IRA Inheritance To Grandchildren in Virginia

Inherited IRA; the money spigotLeaving an IRA to your grandchildren can be one of the greatest gifts a grandparent can give. A young person who inherits a traditional or Roth IRA has to take only minimal distributions each year over a lifetime, enabling the tax-sheltered account to grow for decades. But you should take some precautions to protect your legacy.

An IRA is a retirement account. For many Americans, their IRA is a fundamental part of their retirement. On the other hand, an IRA is more than just a retirement tool.  Think of an IRA as a potentially powerful estate planning tool. Properly structured, an IRA may transfer wealth to younger generations. In fact, the younger, the better.

Kiplinger raised this point in its January edition with an article titled “Pass an IRA to Young Grandkids With Care.”  You see, an IRA is an asset that can swiftly and easily pass outside your estate by completing a simple beneficiary form. Once passed along, a beneficiary to your IRA can either withdraw the account all at once or keep taking withdrawals over time. Under the latter option, the beneficiary may withdraw money annually from the account just as a retiree takes Required Minimum Distributions. If the beneficiary is a grandchild, then the RMD will be based on their own birthdate rather than that of the retiree who owned the account.

A grandchild who wisely continues to take only the Required Minimum Distributions will harness the power of tax-deferred growth within the account. This can really add up, too. But what if you are not confident a young grandchild will act wisely with your IRA account? What then?

Kiplinger offers two ideas to help preserve your IRA legacy from a grandchild’s squandering. First, consider naming the grandchild as beneficiary and appoint a custodian to watch over the account. Alternatively, consider leaving the IRA to the grandchild by way of a trust. Both options give leeway while giving direction, but also come replete with their own advantages vs. disadvantages.   If you have an IRA that likely will be around to give, then be sure to carefully evaluate your options. To that end, the Kiplinger article is a good place to start.

You can learn more about this topic as well as other strategies on our website under the tab entitled: estate planning in Virginia. Be sure you also sign up for our complimentary e-newsletter so that you may be informed of all the latest issues that could affect you, your loved ones and your estate planning.

Reference: Kiplinger (January, 2014) “Pass an IRA to Young Grandkids With Care

 

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The unprecedented coronavirus pandemic has taken our entire country by surprise. We understand how difficult this time is for America’s businesses and families.  However, we believe it is vitally important that we make every effort possible to continue to offer solutions that avoid disrupting our important partnership with you, your family and friends.  As you know, estate planning is not something that should wait for a more convenient time, therefore the opportunity to address your important goals both during and after this crisis should not wait.  To that end, we have added the option of a ‘virtual consultation’ to our office process.  You will now have a choice of either meeting with us in our office or in the comfort of your own home.