Bene for RIRAS
I have a few different RIRAS with my two children being the primary bene. split 50-50 . To streach the RIRAS for them better, would it be better to have my wife as the primary bene, then have her take the RIRAS and have the kids be the primary bene. of my RIRAS. The kids are the only children we have and there is no need for her to use the money as we have enough in our taxable account plus she has several RIRAS of her own. Thanks for a reply.
Permalink Submitted by Peter Lingane on Wed, 2011-09-28 15:49
As I understand your question, you anticipate dying when your children are, say, aged 50. If your children receive your Roth IRAs at that time, they must begin required distributions at a rate of about 3% annually. If your wife is your beneficiary and if she outlives you by ten years, distributions will be delayed by ten years with the result that the Roth IRA will be about 30 percent larger when your children receive it.
Thirty percent sounds like a lot but the true benefit is only the tax on the earnings on thirty percent. If the children’s tax rate is one third and earnings are 5%, the potential savings are 0.33 * (10 * 0.05) * 0.3 = 5% of the present value of the IRA. The potential savings would be less to the extent that required distributions between the first and second deaths allow your children to fund retirement contributions that they could not otherwise afford.
I conclude that your children would probably come out ahead if you were to leave the Roth IRAs to your wife but that the gain would likely be modest.
It sounds like your estate may be large. Would the administration of your estate be less costly if the IRAs went to your children at your death rather than at the second death? Would your children prefer to receive the IRAs sooner rather than later? Do your children have investment opportunities or expenses which make it beneficial for them to receive taxable assets now in lieu of Roth IRAs later? Would estate taxes be reduced by gifts now?
I suggest that you review your estate planning options with a competent professional.
Permalink Submitted by Bruce Steiner on Wed, 2011-09-28 17:36
The Roth IRA could grow by more (or less) than 30% over 10 years, depending on how it’s invested.
There is a chance the original poster’s wife could survive him by substantially more than 10 years. In that case, it’s possible that by the time of her death, the children will be well enough off that they could disclaim in favor of their own children (or Scooper’s wife could leave the Roth IRA to or in trust for the grandchildren), thus achieving a much longer stretchout.
Of course, there could be other factors present that would indicate doing something other than leaving the Roth IRAs to the spouse. As Peter suggested, the original poster should consult with competent tax/estates counsel, who can give him specific advice based upon the facts and his objectives.