Why are IRA's Different?

IRA's (Individual Retirement Accounts) are the black hole of estate planning. Most consumers, as well as financial advisors and attorneys are unaware of the special rules that apply to IRA's. This can lead to unnecessary taxation and in some cases loss of the retirement account. IRA's are different that all other assets which is why estate planning is different for IRA's. IRA's are distributed differently than all other assets both during life and after death.

 Here's why:

• IRA's pass by contract (generally not by will).

• IRA's have Required Minimum Distributions (RMD's).

• IRA's have their own set of complex distribution rules both during life and after death.

• IRA distributions can incur tax penalties.

• IRA's are highly taxed upon death or withdrawal.

• IRA's are subject to double tax at death (estate and income tax, plus state versions of those taxes) in addition to IRS penalties that can apply to withdrawals made by the owner.

• IRA's receive no Step-Up in basis.

• IRA investment gains receive no capital gains tax rates.

• IRA's cannot be gifted or transferred during lifetime (except for a direct gift to a charity under the Pension Protection Act of 2006, but only for August 17, 2006 to the end of 2007 unless extended).

• IRA's cannot be transferred to trusts during lifetime.

• IRA's cannot change ownership during lifetime- this would trigger an immediate and complete distribution and end the tax shelter.

• IRA's cannot be owned jointly, like other property can be owned.

• IRA equity cannot be tapped the way home equity can be tapped without triggering tax and potential IRS penalties.

• The choice of IRA beneficiary determines the ultimate future potential value of that IRA to beneficiaries.

• Trusts named as IRA beneficiaries must qualify under specific IRS rules so that trust beneficiaries are eligible for Stretch IRA tax benefits and there are no separate account rules for IRA trusts.

• IRA beneficiaries may qualify for special tax breaks that are often missed.

• IRA's have no principal and income concept. The entire IRA (principal and income) may be distributed to the income beneficiary of a trust leaving little or nothing to remainder trust beneficiaries. IRA's in a trust are all principal because under trust law, IRD (income in respect of a decedent) is principal in a trust and IRA's are IRD.

• IRA's require their own estate plans and then those estate plans must be integrated within the overall estate plan that includes other assets.

For more information on how to make sure you and your beneficiaries receive the maximum tax benefit by law, click here to read about the Complete IRA Care Solution™.