Ask Terry Questions IRA BENEFICIARIES tax consequences?

IRA BENEFICIARIES tax consequences?

By Terry Savage on August 26, 2016 | Financial Planning / Retirement

Dear Terry, My 2 children are my IRA beneficiaries. If I die will they have to pay taxes on the proceeds. Do they have options?

Terry Says

Great question and it gives me a good chance to remind readers of two things:

  1.  It's important to name a beneficiary (or beneficiaries) for all retirement accounts
  2. It's equally important to educate them to the fact that they should NOT WITHDRAW the money when you die.  Instead have it rolled into an inherited IRA with the same custodian.  That way the money can continue to grow tax-deferred until they take it out, presumably later in their lives.  This tax-deferred growth is the best gift!
There is no tax consequence to them if they follow this plan, until they eventually withdraw.  There is no tax consequence to your estate -- unless the total value of your estate is well over $5 million, and into the realm of  estate taxes.

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