One of the biggest mistakes you can make in estate planning is sending the wrong asset to family,
creating large tax bills that reduce their inheritance and risk pushing them into a higher tax bracket.
You’ve spent a lifetime building your IRA nest egg, and now you’re considering how to pass it on to your heirs. This is where IRA bequests come into play. By designating beneficiaries, you ensure your hard-earned savings go to those you love.
But what are the tax implications when it comes to an inherited IRA? Let’s break down the details:
IRA bequests may seem like a straightforward way to transfer wealth, but there’s a tax catch. When your heirs inherit an IRA, they only have 10 years to withdraw the entire balance and the distributions are taxed as ordinary income.
This bequest, in addition to providing a financial gift, also extends a tax burden and essentially makes a gift to the IRS that will reduce the inheritance your heir receives.
Furthermore, depending on the value of the IRA, the added income could potentially push your heir into a higher tax bracket, eating away even more of their inheritance and further diminishing the legacy you intended to leave behind.
The only exception to the 10-year distribution requirement is if your beneficiary is a spouse. In this case, they can they transfer the assets into their own traditional IRA.
An IRA is not always the best asset to leave to family because your heirs may not receive the full value and it could create additional tax consequences for them.
If you are considering any charitable giving in your estate plans or want to eliminate the tax burden an inherited IRA can create, designating Focus on the Family as your IRA beneficiary can be a smart way to achieve this goal.
As a nonprofit organization, Focus is not subject to the income tax IRA distributions normally create. That means 100% of your gift will go directly to the programs you love and not to unnecessary taxes, creating a legacy with BIG impact!
Choosing Focus on the Family as a beneficiary of your IRA offers a win-win scenario. You reduce the tax implications on your heirs, potentially leaving them more wealth, while also helping families thrive for generations to come! It's a powerful way to align your financial legacy with your values and passions.
Adding a beneficiary to your IRA is an easy process. It typically involves completing a beneficiary designation form provided by your IRA custodian or financial institution. You can name primary and contingent beneficiaries, and you have the flexibility to allocate specific percentages to each.
For more information on this process, consult your IRA custodian or financial institution’s guidelines or refer to IRS guidelines on beneficiary designations.
Let Us Know
Contact Our Team
For comprehensive understanding of the tax regulations around inherited IRAs, see IRS Publication 590-B.
The post Unlock the Power of IRA Bequests: Understanding Tax Implications appeared first on Focus on the Family.
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creating large tax bills that reduce their inheritance and risk pushing them into a higher tax bracket.
You’ve spent a lifetime building your IRA nest egg, and now you’re considering how to pass it on to your heirs. This is where IRA bequests come into play. By designating beneficiaries, you ensure your hard-earned savings go to those you love.
But what are the tax implications when it comes to an inherited IRA? Let’s break down the details:
The Tax Reality for Heirs
IRA bequests may seem like a straightforward way to transfer wealth, but there’s a tax catch. When your heirs inherit an IRA, they only have 10 years to withdraw the entire balance and the distributions are taxed as ordinary income.
This bequest, in addition to providing a financial gift, also extends a tax burden and essentially makes a gift to the IRS that will reduce the inheritance your heir receives.
Furthermore, depending on the value of the IRA, the added income could potentially push your heir into a higher tax bracket, eating away even more of their inheritance and further diminishing the legacy you intended to leave behind.
The only exception to the 10-year distribution requirement is if your beneficiary is a spouse. In this case, they can they transfer the assets into their own traditional IRA.
An IRA is not always the best asset to leave to family because your heirs may not receive the full value and it could create additional tax consequences for them.
The Charitable Alternative
If you are considering any charitable giving in your estate plans or want to eliminate the tax burden an inherited IRA can create, designating Focus on the Family as your IRA beneficiary can be a smart way to achieve this goal.
As a nonprofit organization, Focus is not subject to the income tax IRA distributions normally create. That means 100% of your gift will go directly to the programs you love and not to unnecessary taxes, creating a legacy with BIG impact!
Choosing Focus on the Family as a beneficiary of your IRA offers a win-win scenario. You reduce the tax implications on your heirs, potentially leaving them more wealth, while also helping families thrive for generations to come! It's a powerful way to align your financial legacy with your values and passions.
How to Add a Beneficiary to Your IRA
Adding a beneficiary to your IRA is an easy process. It typically involves completing a beneficiary designation form provided by your IRA custodian or financial institution. You can name primary and contingent beneficiaries, and you have the flexibility to allocate specific percentages to each.
For more information on this process, consult your IRA custodian or financial institution’s guidelines or refer to IRS guidelines on beneficiary designations.
Have you designated Focus on the Family in an IRA or other estate plan?
Let Us Know
Have questions on this or other estate planning strategies?
Contact Our Team
For comprehensive understanding of the tax regulations around inherited IRAs, see IRS Publication 590-B.
The post Unlock the Power of IRA Bequests: Understanding Tax Implications appeared first on Focus on the Family.
Continue reading...