The rules for an IRA rollover change on an annual basis. Because an IRA cannot be owned by a trust outright, this post is about identifying a spouse as a beneficiary of an IRA and thinking through who or what should be the contingent beneficiary.
IRA Rollover: Why Do We Care?
It is very simple. We care because we want to reduce taxes. When our spouse dies, we have 60 days to roll the account over and reduce a tax penalty.
IRA Rollover Intentions
Assuming neither spouse has died, making choices to help reduce tax problems is a luxury. If a rollover is intended, I like the idea of identifying a spouse as a primary beneficiary.
I like this process for a few reasons. First, it grants my spouse an opportunity to complete a rollover of an IRA. Second, I want my spouse to utilize distribution options that favors prosperity.
Would you believe people identify their trust as the primary beneficiary of an IRA? Unfortunately, this is a huge mistake.
IRA Rollover into a Trust
The bad part about making a trust the primary beneficiary of an IRA is the fact doing so might accelerate withdrawal requirements.
Without including specific language within a trust like a “pas through” clause, dumping our assets into a revocable trust might create an even bigger tax burden. For this reason, I believe mapping out a distribution flow plan can help us and our loved ones from accidentally subjecting themselves to a 10% withholding penalty.
Handling An IRA Rollover
Ultimately, I believe there are three things to consider when discussing our estate with our spouse.
- What happens if I die first,
- What happens if we die at the same time, and
- How can we preserve or reduce a tax burden for our children and grandchildren?
My IRA Rollover Process
When I meet with folks about these types of issues, the first thing I look for is obtaining written copies of the beneficiary designations for all retirement accounts. Often, people do not remember who is named on their accounts or whether they selected a back-up.
Additionally, I believe this process requires engaging a CPA or Certified Public Accountant.
Thus, before you start naming a trust as the primary beneficiary of an IRA Rollover, please contact this law office.