• IRAs cannot be owned jointly, like other property can be owned, even in community property states.
• 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 tax rules so that trust beneficiaries are eligible for stretch IRA tax benefits. There are no separate account rules for trusts named as IRA beneficiaries.
• IRA beneficiaries may qualify for special tax breaks that are often missed.
• IRAs 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.
• IRAs require their own estate plans and then those estate plans must be integrated within the overall estate plan that includes all other assets.
Now you see just some of the ways that IRAs are different, but you have to be fluent in all of these tax rules to do the best job for your clients facing retirement. You don’t want to mess up here, especially since most clients have spent decades accumulating these funds. Mistakes are costly and often unforgiving.
I’ll help you here at Financial Advisor magazine!
Ed Slott is the president of Ed Slott and Company LLC.