Thanks to the salutary effects of tax-free growth,
the miracle of compound interest and tax breaks aimed
at saving spendthrift Baby Boomers from themselves, many people are going to accumulate more money in IRAs, pensions, profit sharing plans,
401(k)s, and similar plans than ever before. Why?
Some retirees may be able to sustain their
lifestyles, meet obligations and still leave some percentage of their IRAs to their
heirs. These individuals may want to pass on the unused portion of an IRA
to a spouse, children or even grandchildren. Creating a
Multi-Generational (MGIRA) or “stretch” IRA can result in substantial
distributions being made over the
life expectancies of the owner, the owner’s spouse
and their children.
Consider, for example, a 72-year-old married man
with three children
who has accumulated $2,550,000 for retirement. By
making the most
of Multi-Generational IRA planning, total
distributions from a $2.5 million
retirement nest egg could exceed $11 million!
Unfortunately, putting together a successful
Multi-Generational IRA
takes careful planning, as there are plenty of
potential traps and pitfalls.
As Forbes® Magazine explained, “The rules
covering inherited IRAs are
the most complex that ordinary taxpayers ever
encounter; even the IRS
hasn’t filled in all the gaps.”
The biggest obstacle to an IRA legacy strategy,
believe it or not, is the Federal Government. Congress
created IRAs to encourage Americans to plan for
their retirement. However, it never intended for them
to accumulate funds and defer taxes indefinitely.
Unless an IRA owner takes specific steps to continue
to defer tax liability, the IRS stands to take 35
to 80% of those hard-earned IRA funds upon the death of
the
owner.
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