This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

How to Leave an IRA to Your Heirs

If you do not need the income from IRA or retirement plan assets, it might be best to convert to a Roth IRA now. You pay income tax on the converted amount upfront, but your heirs inherit a tax-free asset. They still are required to take minimum distributions, but when they withdraw money from the account they do not owe any income tax.

You can roll over small amounts of your IRA each year rather than convert to a Roth all at once. Heirs other than your spouse can't change an inherited IRA to a Roth IRA after your death. On the other hand, they can switch an inherited qualified plan such as a 401(k) to a Roth IRA. This may weigh upon your decision to roll over your retirement plan to an IRA.

If you name a charity as a beneficiary of your IRA or qualified plan, list the percentage of the amount you wish to leave the charity rather than a dollar amount. Failure to list a percentage amount leads to a no designated beneficiary status for the account. This means your remaining heirs are forced to withdraw funds from the IRA within five years rather than stretching distributions over their lives. The end result is that your heirs pay more in tax immediately.

Be careful if you're in a second marriage with children from both spouses. It's very easy to disinherit your children unintentionally by naming the second spouse as sole beneficiary of your IRA or retirement plan. In any situation involving children of multiple spouses, you need to do extra planning to ensure your estate plan is in order.

A good rule of thumb is to review all beneficiary forms once a year. Often we go through major life changes such as births, marriage, divorce or deaths without remembering to update the estate plan. There are countless horror stories of accidentally leaving an account to an ex-wife.

IRAs and retirement plans present great opportunities to leave tax-efficient assets to your heirs. But the beneficiary designation decision is often not that simple. It helps to consult a trusted financial adviser for help with estate planning and beneficiary designations.

-- By Blair Hodgson DuQuesnay, founder and CEO of Ignite Investments and Planning a registered investment advisor domiciled in the state of Louisiana. She posts financial insights regularly on her blog.

AdviceIQ is a network of financial advisors that writes insightful articles for the public about investing and wealth management. All articles are edited by AdviceIQ's editor in chief, Larry Light. AdviceIQ certifies that all its advisors have no regulatory infractions.

AdviceIQ is a network of financial advisors that writes insightful articles for the public about investing and wealth management. All articles are edited by AdviceIQ's editor in chief, Larry Light. AdviceIQ certifies that all its advisors have no regulatory infractions.

2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $126.37 0.00%
FB $83.20 0.00%
GOOG $552.03 0.00%
TSLA $190.57 0.00%
YHOO $44.95 0.00%

Markets

DOW 17,976.31 +263.65 1.49%
S&P 500 2,086.24 +25.22 1.22%
NASDAQ 4,947.4410 +56.2220 1.15%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs