As you might imagine, most financial planners (and most clients) have a preference for stretching the distribution of their IRA (or other qualified retirement) accounts over long periods of time so as to lessen the income tax burden on those accounts over many years. And, if possible, most clients would prefer the ability to leave dollars in those accounts to their children and grandchildren as a form of legacy/inheritance. However, as life circumstances change, it sometimes makes sense to keep an open mind about how we view the distribution of those accounts.
In our experience, we have found that it sometimes makes sense to consider accelerating the distribution of IRAs/qualified retirement accounts when the following circumstances are present:
Owner of the IRA is an older adult (in this context, meaning beyond RMD status)
IRA/Qualified Retirement Accounts are smaller accounts within the clients overall investment portfolio (i.e. have a $30k IRA and have other investment accounts/bank accounts to draw from)
Are likely in a lower tax bracket than the heirs they might be leaving the assets to
May have medical/health care costs to write off to offset the income from the potential income from IRA/qualified account distributions
While these circumstances certainly will not apply to MOST clients, they might apply to a select few. When they do, this strategy can not only save significant tax dollars but can simplify the distribution of an estate long term by avoiding the division of a small IRA amongst multiple beneficiaries.
If you or your family have questions about whether this strategy might apply to you or someone you know, please reach out to our Center Team. We are always happy to help!
Sandra Adams, CFP® is a Partner and Financial Planner at Center for Financial Planning, Inc.® Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.
Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary of all available data necessary for making a financial decision and does not constitute a recommendation. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. Raymond James does not provide tax advice. You should consult a tax professional for any tax matters related to your individual situation.