If you have a large IRA as part of your estate plan and you intend to leave the funds to a beneficiary, I recommend you read Mr. Dougan’s article about all pending legislation.
For those of you who wish to access the bill, the link is: https://www.congress.gov/bill/114th-congress/senate-bill/3471 S.3471 - Retirement Enhancement and Savings Act of 2016 - 114th Congress (2015-2016)
An excerpt from the bill:
“...Moreover, the shift in recent decades from employer-sponsored defined benefit plans, under which the default form of benefits is an annuity, to defined contributions plans, which generally do not offer annuity benefits, creates the risk of employees outliving their retirement savings. The Committee believes that legislation is necessary to provide new incentives for employers to adopt retirement plans (including ways to reduce the costs associated with having a plan), new incentives for workers to contribute to workplace plans and individual retirement arrangements, and other measures to further retirement income security.”
Note: There have been 13 related bills, including H.R. 6346 “Retirement Security for American Workers Act – 11/29/16)
All is not without hope however, when it comes to IRA inheritance if the new legislation passes as written/revised.
One option for those with a large IRA (emphasis on the word large) is to establish a testamentary charitable remainder trust. This type of trust allows for passing on a large IRA to a non-spouse beneficiary. (emphasis on non-spouse).
The basics and validity of setting up such a trust is beyond the scope of this article and depends on: various individual circumstances; the provisions of the IRA itself and all pending/revised legislation.
Note: A testamentary charitable remainder trust should not be considered without sound legal advice.
Consulting with an estate planning attorney with a tax background would be a good start to finding out if such a trust would be advisable in individual circumstances.
Why is the government so interested in seeking a shorter payout period for inherited IRA’s? Consider that, according to some estimates, the valuations (2015) of all IRAs exceeded $7 trillion – and that is a lot of tax revenue!
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