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Financial Planning / Tax Strategies
|Subject: Re: IRA Beneficiary||Date: 11/11/1999 1:02 PM|
|Author: gtstarling||Number: 20946 of 121095|
"After my husband and I are long departed, my IRA beneficiary is my cousin in Scotland, I am being told that it will not be part of my estate, and no taxes will be owed, since the IRA will be sent overseas. Is this true???"
Don't you wish????
It will be part of your estate - and taxed at rates as high as 55% if the estate is above $3 Million. (There is an exemption that allows estates of up to $650,000 in 1999 - increasing in increments to $1 Million by 2008 - to pay no tax.)
However, ordinary IRA's also have income tax still due - and this must be paid by the beneficiary as "Income with Respect to a Decedent" or IRD. The fact that the beneficiary is overseas does not, to my knowledge, make any difference.
IRA's as a part of an estate is an area of vast ignorance of what happens - and heirs get much less than we think they will in many cases.
There are ways to minimize the damages. For example, if you are including a charity in your estate plan, make sure the charity is at least a partial beneficary of your IRA. There are two benefits: First, there is an unlimited charitable deduction for estate tax purposes. That is, there is no estate tax payable on the charitable bequest. Second, as a charity, it will receive the bequest tax-free. That is, the income tax is also forgiven because of the charity's tax-exempt status (assuming it is a 501(c)(3) organization).
There are other ways to stretch out the deferal of the income taxes by careful selection of your withdrawal and beneficary options. But, you can get hit with all of the taxes within the first few years after the estate is distributed if you are not careful.
Good hunting! (for the right answers)
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