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KEEP THE IRA GOING By:
Cal Hudson
For widows or widowers with large IRA accounts who do not need
to withdraw any more than the minimum required for their support and
maintenance, a significant opportunity may exist for wealth accumulation.
For persons who meet certain requirements, one or more IRA accounts
can be utilized naming children or grandchildren as beneficiaries and
making a distribution election based on the joint and several lifetimes
of the owner and the beneficiaries.
This election extends the number of years over which withdrawals
can be made and takes advantage of income tax deferral benefits.
For example, a 70-year-old widow could roll over her late husband’s
$600,000 IRA into her own IRA, name her 40-year-old daughter as beneficiary
and elect to withdraw, based on the joint and several life expectancy
of them both, which equals 43 years.
The widow’s election to use her own life expectancy of 16
years would require her to withdraw 1/16 of the account the first year,
1/15 the next year, and so forth with the probability that she would
withdraw most or all of the account by the time of her death.
However, by using a joint and several life expectancy, she can
withdraw over 26 years (10 years more than her own life expectancy),
allowing her to withdraw 1/26 the first year, 1/25 the second year and
so forth. So long as the
average rate of return on the account exceeds the minimum withdrawal
amount, the account will grow in value.
Frequently, it will be greater at the death of the owner than
it was when distributions began.
Assuming the widow dies at the age of 86, the remainder of the
joint and several life expectancy amounting to 27 more years could then
be used by the daughter to withdraw the balance of the account.
The daughter would take 1/27 the first year, 1/26 the second
year and so forth. At the end of those 27 years, the total withdrawals by mother
and daughter would be several times the amount of the original account.
Beneficiary designations and distribution elections for IRA accounts
should be an important consideration in planning most person’s
estates. |
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