Taking the Lump Sum on Smaller IRA?
In general, for a $7,000 mutual fund traditional non spouse IRA, would it be worthwhile, in terms of tax savings on not having a lump sum distribution, to go through the process of first transitioning the account to the beneficiary estate that will be inheriting it and then to the beneficiary of the estate? Or does it make more sense on a smaller IRA like that to just have the beneficiary estate take the lump sum, closing the account? Thanks.
Permalink Submitted by Alan - IRA critic on Fri, 2017-11-03 19:13
The answer depends on whether the owner passed prior to the RBD (5 year rule) or after (longer stretch except for very old decedents), the tax bracket of the beneficiary in current year, current uses for the money, and how much of a hassle it will be with the current custodian to assign the account to the beneficiary out of the estate. Only the executor can assign the account, so the executor and the beneficiary must first be on the same page to make the best decision. If the beneficiary is reasonably well off and in the 25% or higher bracket, that would suggest the simpler cash out.
Permalink Submitted by Cheryl Van Beek on Sat, 2017-11-04 19:28
That’s very helpful; thank you.