IRAs and inherited IRAs are tax-deferred accounts. That means that the tax is paid when the holder of an IRA account or the beneficiary makes distributions (in the case of an inherited IRA account). IRA distributions are considered income and, as such, are subject to applicable taxes. A beneficiary can be any person or entity that the owner chooses to receive the benefits of a retirement account or IRA after death.
Beneficiaries of a traditional retirement account or IRA must include in their gross income any taxable distribution they receive. In fact, the spouse has the most flexibility under income tax rules when he inherits the IRA. The most popular option is to transfer the IRA and then name the spouse's own beneficiaries. And from now on, the spouse will be treated for income tax purposes as if they were the original owner of the IRA.
You can certainly name the trust. You should note that, unless the trust complies with certain particular income tax rules, the distribution rate of the IRA and also the rate at which income is subject to income tax may be higher than if individuals were named directly. And I would say that the owner of an IRA should really be prepared for a trade-off between the benefits of a trust, which includes professional asset management and the protection of creditors from beneficiaries, and the exaggeration of income tax. And by income tax exaggeration, I mean the ability to distribute IRAs over a person's life expectancy.
You can name children as beneficiaries directly, no doubt. Keep in mind that they will be able to withdraw the assets immediately and completely if they are named beneficiaries, so if the amount is large enough and the children are perhaps too young, you may want to think about whether they are mature enough to assume financial responsibility. In addition, I could consider a generic beneficiary designation if the guardian accepts it, for example, “for my children who then lived in equal shares” or “for my living descendants then by stripe”, and that type of designation should work even if the deaths occur outside the natural order in which the child dies before the father. And finally, if children divide the IRA into separate inherited IRAs in a timely manner, each of them will be able to use their life expectancy separately for distributions.
Certainly, from the perspective of real estate legislation, an estate can be called a beneficiary, but keep in mind that an estate does not have a life expectancy, so the available period is limited to five more or longer years and the remaining life expectancy of the owner of the IRA. In addition, any IRA assets payable to the inheritance will be exposed to the creditors of the IRA owner. However, if neither income tax nor creditor issues are a cause for concern, then an estate can certainly be named a beneficiary. IRA ownership involves a beneficiary designation or, if there is none, in accordance with the default provisions contained in the document governing the IRA.
If you inherit a Roth IRA as a spouse, you have several options, including opening an inherited IRA. If the deceased beneficiary named the beneficiaries to receive their share of the IRA after their death, they will receive their share of the IRA assets. If a surviving spouse receives an IRA distribution from their deceased spouse, they can transfer it to a surviving spouse's IRA within the 60-day limit, as long as the distribution is not a mandatory distribution, even if the surviving spouse is not the sole beneficiary of their deceased spouse's IRA. You'll need to pay taxes on withdrawals from your inherited IRA if the funds in the original ira account are classified as tax-deferred.
This means that the beneficiary cannot make any contribution to the IRA or transfer any amount to the inherited or transferred IRA. An IRA owner who has both IRA assets and other assets and is considering leaving the IRA to a charity or to non-charitable beneficiaries, such as their spouse or children, should probably choose a charity, but I would still recommend that an advisor analyze the numbers. Distributions from another Roth IRA cannot be replaced by these distributions, unless the other Roth IRA was inherited from the same decedent. However, the beneficiary can make a transfer from trustee to trustee as long as the IRA to which the amounts are transferred is established and held in the name of the deceased IRA owner for the benefit of the beneficiary.
These rules don't apply if you've simply transferred another IRA to your own IRA, but are specific to inherited IRAs. Understand the basics of IRAs and of naming the beneficiaries of an IRA, such as how to name beneficiaries your spouse, children, a trust, unborn children or charities in this short video. . .