Aug 22, 2011

IRAs as part of Florida estate planning

IRAs, or individual retirement accounts, require special consideration when creating your Florida estate plan. Any unused funds in your IRA upon your death may be paid to beneficiaries. Proper planning can ensure your heirs get the most benefit.

IRAs are personal savings plans that allow you to set aside money for retirement and create tax savings. The advantage of IRAs is that you may be able to deduct some or all of your contributions to an IRA from your taxes and also be eligible for a tax credit equal to a percentage of your contribution. Earnings in a traditional IRA are generally not taxed until distributed to you. At age 70 1/2 you must begin taking withdrawals from your traditional IRA. Earnings in a Roth IRA are not taxed nor do you have to start taking distributions at any point, but contributions to a Roth IRA are not tax deductible. Any amount remaining in your IRA upon your death can be paid to your beneficiary or beneficiaries.

Generally speaking, your estate should not be the beneficiary of your IRA, since that would trigger probate. Most people name their spouse as beneficiary. A spouse who inherits an IRA can "roll it over" into his/her own IRA. You should also name contingent beneficiaries. A non-spouse beneficiary who inherits an IRA must start taking distributions from the IRA within a year after the IRA owner dies.

If you do not need your IRA funds for your retirement years, you can take only the minimum required distributions starting at 70 1/2, and create an "IRA Stretchout Trust" which can benefit your children, your grandchildren and beyond. When you die, your beneficiary can also stretch distributions out over his or her lifetime and then designate a second-generation beneficiary. You can read more about the IRA Stretchout Trust here.

If you have a Living Trust, there are certain circumstances when it's wise to name the Trust as beneficiary. Examples include if you have minor children, children with special needs, or a beneficiary who is not fiscally responsible. However, the Trust must be properly drafted to avoid negative tax consequences. If you are thinking of leaving your IRA to a Trust, be sure to consult with our elder law/estate planning attorneys to ensure the Trust is properly drafted.

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