IRA Distributions
I have a client 83 years old who has about 200k in an IRA. The beneficiaries of her IRA are her three children (52, 60, 61). My client’s accountant thinks that she should take $15,000 out of the IRA (above the RMD) every year to minimize the taxes that the beneficiaries would have to pay. The client’s current tax rate is 15% while the beneficiaries are 28% each. Am I missing something or would the right move be to keep the money in the IRA and stretch the distributions out over the lifetime of the beneficiaries.
Thanks
Permalink Submitted by Al Fry on Tue, 2008-12-30 15:48
Another factor could be the type of investment in the IRA. Long-term tax deferred growth is a consideration.
Permalink Submitted by mk foss on Tue, 2008-12-30 17:46
I think it’s a good idea to use up the 15% bracket with extra RMDs. She can give some now to the kids if she doesn’t need it. Even better if she invests it and the kids inherit the tax paid funds and receive a step up in basis. That’s assuming that the economy will come back with a roar and we again have steps up in basis.
Permalink Submitted by Alan Spross on Tue, 2008-12-30 19:06
Another option would be for her to convert amounts in excess of her RMD to a Roth IRA. The higher tax bracket children would then inherit a Roth IRA, and even though there would be RMDs, the distributions would be tax free.
The 100,000 income limit for Roths applies in 2009, but that is the last year for income limits. She would also have to take her RMD before converting additional amounts to a Roth IRA. She could to this systematically each year to use up her 15% bracket, but note that this could also cause inclusion of more of her SS income in AGI.