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.
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.
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.
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