IRA Legacy Planning

IRA Legacy Planning Assistance for Phoenix Retirees

Individual Retirement Accounts (IRAs) are most often thought of solely as tools for retirement savings. However, they often end up playing an important role in generational wealth transference, as many people pass away with assets remaining in their IRA. There are also unique tax advantaged charitable giving strategies that can be beneficial for retirement savers with traditional IRAs.

If you have an IRA, it’s likely in you and your family’s best interest to think ahead and make preparations based on the assumption that at some point the funds remaining in the IRA will be disbursed to your beneficiaries. The financial advisors and retirement planners at Fullerton Financial Planning can help.

What Is IRA Legacy Planning?

IRA legacy planning is a strategic approach to manage your IRA assets, ensuring they are passed on to beneficiaries in the most tax-efficient manner possible. This planning helps protect the account's value, ensuring your financial legacy remains robust for future generations.

Traditional IRAs Versus Roth IRAs

Traditional IRAs involve contributions that may be tax-deductible, but distributions in retirement are taxed. Contributions to Roth IRAs are done with after-tax dollars, but distributions during retirement are generally tax-free.

Both types of IRAs have distinct legacy planning advantages and considerations.

The Importance of Beneficiary Designations

A crucial aspect of IRA legacy planning is correctly designating beneficiaries. Failing to update or correctly name beneficiaries can result in unwanted consequences:

Estate Taxes: Without a named beneficiary, the IRA might become part of the estate, potentially subjecting it to estate tax.

Accelerated Distributions: The absence of named beneficiaries can lead to a faster depletion of the IRA funds.

The Stretch IRA Strategy

The "Stretch IRA" is a popular estate planning strategy. It allows beneficiaries to "stretch" their required minimum distributions (RMDs) over their life expectancy, maximizing the tax-deferred growth potential.

However, note that recent legislation changes, particularly the SECURE Act, have affected the Stretch IRA strategy, limiting its effectiveness for non-spouse beneficiaries. SECURE essentially requires non-eligible beneficiaries to empty the IRA within 10 years and simply pay the resulting taxes. A spouse inheritor or “Eligible Designated Beneficiaries” can still make use of a Stretch IRA strategy.

Spousal Transfers

If your spouse is the beneficiary of your IRA, they have the option to treat the IRA as their own. This means they can defer distributions until they reach the age for RMDs, allowing the IRA to continue its tax-advantaged growth.
Roth Conversions for Legacy Planning

Converting a traditional IRA to a Roth IRA can be a strategic move for legacy planning. Though the conversion triggers a tax event, it allows for tax-free growth and distributions for beneficiaries after the transition.
Charitable Giving with Your IRA

If philanthropy is a component of your legacy goals, you can use your IRA to benefit charitable organizations. Qualified Charitable Distributions (QCDs) can satisfy your RMDs and offer tax benefits.

This is particularly valuable if you have a traditional IRA and would otherwise be required to pay taxes on RMDs. Signing over QCDs directly to a charity allows you to bypass the taxes since you’re not taking the distribution as income, and you still get the charitable deduction.

The Role of Trusts in IRA Legacy Planning

For those with larger estates or specific wishes regarding the distribution of assets, trusts can be a valuable tool. A trusteed IRA, or naming a trust as the beneficiary, can provide added control over the distribution of assets.

However, trusts are complex, and not all are suitable for IRA assets. Our team works closely with estate planning professionals to ensure all necessary rules are followed to implement your IRA legacy plan in the most efficient and effective way possible.

Regular Reviews and Updates

Legacy planning is not a one-time task. It’s important to regularly review and update your IRA beneficiary designations, especially after significant life events like marriage, birth, divorce or death. Some benefits of working with professionals like those at Fullerton Financial Planning are periodic reviews and having experts in your corner keeping an eye on your various retirement savings and estate planning tools to ensure everything is working correctly.

Get Reliable Assistance with Your IRA Legacy and Retirement Planning

IRA legacy planning is about more than just designating a beneficiary. It helps ensure your hard-earned savings are passed down in the most efficient way, reflecting your wishes and maximizing benefits for your loved ones.

Get the most out of your IRAs and retirement savings vehicles with the help of Fullerton Financial Planners – call us today at (623) 974-0300 to speak with a financial advisor.