ROLL OVER IRA
I am 71 and due for RMD next year can i take distribution to convert to ROTH IRA? For IRA i and my spouse will use only RMD for our life is it better to name IRA trust as beneficiary or divide IRA into each kids name as beneficiary
thank you for your detail response. WE do not have issue with previous or future marriage and no other kids. our kids are well educated and responsible and have more money than me. most likely 99 percent they will decline inherited IRA to go to there children who are young. what is best way to plan assetts of IRA TO THEM . Regular or ROTH. really appreciate in depth analysis.
If you indicate a contingent beneficiary on your IRA of your grandchildren, your children could disclaim their inherited IRA and it would pass to the grandchildren. But that does not change the 10 year rule. Children could also do a partial disclaimer, keeping some and disclaiming the rest. A disclaimer must be done within 9 months of the last spouse’s date of death to qualify.
Note that each spouse can designate part of their IRA to the children, and the rest to the surviving spouse. When the first spouse passes, part of their IRA goes to the children and starts the 10 year rule. If the other spouse survives 10 more years before passing, the children will effectively get 20 years because they will inherit at different times. This would save them taxes by allowing distributions over a period longer than 10 years. They could still disclaim all or part and use both strategies to get the funds to their children. Of course, the surviving spouse needs to change their beneficiary immediately after the first spouse passes. You might retain an estate planner in order to sift through these options.
do surviving spouse have to disclaim part of IRA to go to grandchilden? is same true for converted ROTH IRA?
Permalink Submitted by Alan - IRA critic on Tue, 2021-08-17 16:52
You can convert an amount this year, but starting in 2022 when you are subject to RMDs you must complete your RMD before doing an conversions. If you convert then your taxable income will be the total of your RMD and the taxable conversion. That means that this is the last year you can convert without having an RMD adding to your income as well.
Your second question has no general answer. It depends on the size of the IRA that will be inherited after the last spouse passes, and if the kids are responsible with money or are subject to creditor issues including from their spouses in a marital settlement. If any child is disabled, a special needs trust could be considered as the beneficiary of that child’s interest in the IRA. In most cases, you would not need to split your IRA into separate accounts for each child, but there are cases where the children do not get along, or you do not want each one to know what the other inherited, where you would partition the IRA into separate IRA accounts at some point, perhaps by the surviving spouse after surviving spouse inherits. In addition, if there are children from prior marriages, a trust could provide for the spouse, but limit how much the surviving spouse can withdraw. So the short answer is “it depends” on the situation.