Possible Changes to Beneficiary IRAs
Published on August 12, 2013
With discussions of the national budget heating up in Washington DC and the need to increase tax revenue being a main topic, it makes sense that IRAs would come into the equation. In an article by ThinkAdvisor.com, it was reported that Congress has begun to take a closer look at “stretch” – or beneficiary – IRAs.
Here’s how a beneficiary IRA works. Under the laws a beneficiary is allowed to either take the money in a lump sum (which is how beneficiaries typically elect to receive the funds) or receive the required minimum distribution payments based on their lifetime, not that of the original IRA owner. This can lead to huge benefits for the beneficiary who is much younger than the original IRA owner – for example, a grandchild – because the funds may remain for a longer period of time in the IRA, and continue to grow tax deferred over the beneficiary’s longer lifetime. The amount of taxable income distributed from the beneficiary IRA is thereby slowed down; hence Congress’ attention on these retirement plans.
What some in Congress are proposing is that there be a limit to how long a beneficiary can leave the money in the account (this is for non-spouse beneficiaries). By enacting this time limit the government will be able to receive income taxes on these account distributions much sooner than it does now.
Although Congress has not yet voted on this, the change to tax rules for IRAs could have a huge effect on many people. It is important to look at your own beneficiaries and see if or how this proposal could affect your plans to pass your estate on to your loved ones. To determine your best course of action, consult an estate or tax planner. You can read more about beneficiary (stretch) IRAs at http://www.ehow.com/about_6613240_definition-stretch-ira.html#ixzz2ZzLdLzLkBack to Blog