HOW DOES MY IRA FIT INTO MY ESTATE PLAN?

When Florida residents assess the value of their estates, they are encouraged to consider both testamentary and non-testamentary assets. Estate administration professionals encourage those with IRAs and other specialized accounts to carefully plan for these assets’ distribution in the event of their untimely deaths. Some measure of anticipation is required in order to correctly deal with a pending IRA.

An IRA is a non-testamentary asset, so it is not included in the probate, or legal, estate. In other words, your IRA is not affected by your will; it is only managed by documents that designate certain beneficiaries for that individual account. Even though an IRA is not officially tied to your will, it is part of the taxable estate that will be considered by federal estate tax assessors.

If your estate is currently valued at less than $5 million, you will not face federal estate tax charges. Your entire estate could pass to your beneficiaries without any penalty to your estate, itself. However, your beneficiaries could face some tax consequences if they accept funds from your accounts. If the beneficiary of your account is your spouse, your funds can easily be rolled over into another IRA, where they can be withdrawn according to retirement account rules. The situation becomes trickier, however, when you name someone other than your spouse as the IRA beneficiary.

In this case, we are assuming that your IRA is filled with pre-tax dollars; that is, the account is not a Roth IRA. Your beneficiary can choose to pay income taxes on the funds over a five-year period after withdrawing them entirely. Alternatively, he or she could pay income taxes as periodic withdrawals are made. Your beneficiary could also take out all the money at once and pay the entire balance of income taxes in the same year.

If you are unsure about the future of your IRA in your overall estate plan, consider seeking assistance from a probate attorney. These professionals can help you provide the lowest-tax option for your beneficiaries and heirs.

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Written by Luis E. Barreto

Luis E. Barreto

Luis is a probate and guardianship litigator with over 23 years of experience in the field. Determination of heirs, will contests, breaches of fiduciary duty, removal of personal representatives, guardians and trustees are just some of the types of litigation he addresses. In addition, he administers non-contested estates and guardianships.