If you are the beneficiary of an IRA whose owner has recently passed away, it is important that you not do anything without getting advice.
They depend on the relationship between the beneficiary and the deceased. These tax consequences are big enough that it is important to seek professional tax advice and to do so quickly.
There are penalties if decisions are not made within certain time limits.
If you are not certain who to talk to about what to do with an inherited IRA, then talk to the attorney who is assisting with the administration of the estate.
The attorney can help direct you to a professional who can assist.
IRAs have become an important estate planning tool. However, as Congress seeks ways to raise revenue, they might make those IRAs less desirable for estate planning purposes.
Over the last few decades, estate planners have grown very fond of IRAs. The retirement accounts allow people to name a beneficiary who gets the account automatically without the need for a will or trust after the current account holder passes away.
It is a very simple way to pass wealth to the next generation that has many uses in estate planning.
IRAs make estate planning easier, in most cases.
With one type of IRA, known as a stretch IRA, the beneficiary of the account can even delay taking out required minimum distributions and delay and perhaps save a lot on taxes.
However, that benefit is now coming under fire as Kiplinger reports in "Death of 'Stretch' IRAs Would Mean Loss of Flexibility for Beneficiaries."
Congress is considering doing away with the ability to stretch IRAs for non-spouse beneficiaries, if the accounts hold more than $450,000.
This proposal has passed in the Senate Finance Committee as it is expected to raise federal revenue by a substantial amount. If this passes and becomes law, estate plans will need to be revisited.
This idea is not yet currently law.
However, people who uses IRAs as an important part of their estate plans would be advised to keep an eye on this issue and to start thinking about alternatives for their estate plans.
It would not be a good idea to get caught off guard.
Should this pass, failure to adjust your estate plans could cost your heirs large sums of money.
Reference: Kiplinger (August, 2017) "Death of 'Stretch' IRAs Would Mean Loss of Flexibility for Beneficiaries."