Roth IRA Distributions at Death: the pitfalls to avoid

Author: Robert D. Cavanaugh, CLU

One of the most attractive features of a Roth IRA is the ability to control the timing of any distribution requirements. However, that mandate the ability to make withdrawals in a set of rules.

The distribution of the benefits of a Roth IRA beyond the death of the owner of the IRA. But to ensure that spouses and children can benefit, things must be put in place. Here is a summary of the rules on Roth IRA distribution, death.

Many people do not like the traditional requirement that the IRA must begin required minimum distribution (RMDs) at age 70 1 / 2. We may not need Retirement Social Security tax.

RMDs during the life of the Roth IRA owner is not required. As long as revenue is needed, can be retreats, but there is no obligation on the IRS.

When the Roth IRA owner dies, RMDs must begin. When they are required to start distributions received and how it is determined by several factors.

Your spouse is the beneficiary

If your spouse is the sole beneficiary of your Roth IRA, your spouse can make an election to be treated as the owner of your Roth IRA. In this case, RMDs may be deferred until death.

Note the word "unique" beneficiary, as is an area where a mistake can be done inadvertently.

For example, say that the name of his spouse and children as beneficiaries. The spouse be prohibited from making election and RMDs property would be required during the life expectancy of the spouse, thereby reducing (the spouse could die before their expectancy), or the evacuation of the Roth IRA account balance in full. Both by their desire to leave a game for children.

If the Roth IRA owner dies before age 70 1 / 2, the spouse does not have to start the RMDs until the IRA owner would have reached age 70 1 / 2. This is another area where the spouse is in need of attention. If RMDs are not started when necessary (or less than the required amount is withdrawn), the penalty imposed is a incredible 50% of the difference between what is needed and what was withdrawn.

If your desire is to extend the RMDs until the death of his spouse, is another "head". Suppose the name of a trust for the beneficiaries of your Roth IRA. Even if your spouse is the sole beneficiary of the trust, the choice to treat her husband as her own Roth IRA can not be done. It is technically in May to avoid (the investment), but why not just put things in place to start?

A person who does not your spouse is the beneficiary

In this case, the distribution must be done in the rest of the life expectancy of the beneficiary. If more than one beneficiary, the hope life of the oldest in use. If the beneficiary is a trust with multiple beneficiaries, the oldest beneficiary of the life expectancy is also used.

Another Warning: If an entity other than a person is a beneficiary of an IRA (even if a person is also a beneficiary), the IRA is not considered a beneficiary. The distribution requirements of an IRA with no beneficiary is described below.

Probably the most common scenario involving a "no person "is a charity. If the name of charity as a beneficiary, distribution rules are different in May and is contrary to their wishes. The solution is to reduce part of the IRA to a new name of charity and as sole beneficiary.

No Beneficiary

If no beneficiary is elected, the entire distribution should be in five years. In five years of this rule also applies even if there is a beneficiary and the distributions does not start when the rules are start.

As I hope you can see, there are several ways to make mistakes that take place in very different distributions of their desires. These examples are my interpretation the rules and can not be relied upon for tax advice. I recommend sitting down with your financial planner, your accountant and a lawyer planning to ensure that everything is configured correctly.

About the author:

Robert D. Cavanaugh, CLU is 36 years of financial planning and planning veteran and author of the newsletter "The Estate Preservation Advisor". To register and get free video, "How to Sell your life insurance policy on the cash value, will http://theestatepreservationadvisor.com/freevideo.htm

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