IRA

Benefits of "Separate" Inherited IRA Accounts

December 5, 2012

Don't forget about a year-end planning strategy that can help non-spouse IRA beneficiaries improve their tax situation.

I hope everyone had a great Thanksgiving. Interestingly for me, a couple of days before this past Thanksgiving, my wife called an audible and informed me that we would also be going to her parents’ house for a turkey dinner. To be honest, I was pretty jazzed about having both gatherings on Thanksgiving Thursday, especially since my father-in-law (aka T) is a phenomenal cook. However, the biggest challenge for me was to remember portion control (not to have too much during the first meal) so that I could have plenty of room for my second meal.

Of course, that’s easier said than done. As you can probably imagine, I did not remember to ease up during the first meal.

 

"Separate" Inherited IRAs

Just like I should have remembered portion control on Thanksgiving Day, each non-spouse beneficiary needs to also REMEMBER to split the IRA (they inherited) into a separate account before December 31st of the year following the death of the IRA owner. Only when separate Inherited IRAs are established can each beneficiary stretch the annual required distribution over their own life expectancy. The benefit of a non-spouse Inherited IRA is that the beneficiary can continue tax deferred growth of the IRA while taking an annual required minimum distribution (RMD) beginning the year following the IRA owner’s death.

What next? 

Check your book of business. If you had clients that passed away during 2011 with multiple non-spouse beneficiaries, make sure they (the beneficiaries) split their portion into their own separate account by December 31st, 2012. This type of year-end planning can help improve tax results for each beneficiary.

If the Inherited IRA beneficiary would like to consider investment options other than their current option, make certain the money is moved via a trustee-to-trustee transfer.
 

Picture of Gary Pence

Gary is the Home Office Manager of the Retirement Strategies Group in the Retirement Solutions Division at Pacific Life. With over 24 years of experience in the financial industry and for the past 15 years, he has worked with the Retirement Strategies Group dedicated to helping advisors address complex tax, estate, charitable, and retirement planning issues for their clients and their tax and legal professionals.

Pacific Life, its distributors, and respective representatives do not provide tax, accounting, or legal advice. Any taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor or attorney.

Pacific Life is a product provider. It is not a fiduciary and therefore does not give advice or make recommendations regarding insurance or investment products.

Pacific Life refers to Pacific Life Insurance Company and its affiliates, including Pacific Life & Annuity Company. Insurance products are issued by Pacific Life Insurance Company in all states except New York and in New York by Pacific Life & Annuity Company. Product availability and features may vary by state. Each insurance company is solely responsible for the financial obligations accruing under the products it issues. 

Variable insurance products are distributed by Pacific Select Distributors, LLC (member FINRA & SIPC), a subsidiary of Pacific Life Insurance Company (Newport Beach, CA) and an affiliate of Pacific Life & Annuity Company. Variable and fixed annuity products are available through licensed third parties.

No bank guarantee • Not a deposit • Not FDIC/NCUA insured • May lose value • Not insured by any federal government agency