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  • The wrong people may later inherit the IRA (the child, as initial beneficiary, could name his or her spouse as next beneficiary and that spouse's next husband or wife or that spouse's children of another marriage could inherit the account!)
  • The beneficiary, his or her spouse or children may have poor spending habits (be "spendthrifts"!).
  • The beneficiary may lack good money management/investment skills.
  • A beneficiary's spouse may take some or all of the IRA in a DIVORCE!  (The income tax laws, allowing an IRA transfer in a divorce to be tax-free, actually encourage the spouse to grab it; and keep in mind the statistical chance of a divorce is now over 50%!).
  • If the beneficiary is too young, is elderly or disabled, he or she may not be able to properly manage his or her own affairs - - without unwanted court intervention.
  • A beneficiary who now or later in life receives needs-based government benefits (like Medicaid nursing care benefits or supplemental disability income) may not qualify for or may lose those benefits.
  • In most states an “inherited IRA” (one not in an IRA Inheritance Trust®) is not creditor protected and can be grabbed in a lawsuit, even a bogus one that forces a beneficiary to settle.

Many IRA owners and their professional advisors “assume” that the IRA beneficiaries will make the right “stretchout” decisions, or at least seek the advisor’s help before they take withdrawals.   Unfortunately, that is often not the case when the IRA owner dies.  The beneficiaries are not prohibited from withdrawing more than the RMDs and may instead decide to cash out the IRA earlier than required, blowing the stretchout. This happens because beneficiaries:

Let’s assume the IRA beneficiary will properly do the RMD “stretchout” and pay the taxes gradually over his or her lifetime.  A lot can still go wrong.  When a beneficiary receives an inheritance directly, as is the case when an individual is named directly as the beneficiary of an IRA, his or her inheritance can then be exposed to a number of significant problems:

  • Are not aware of the RMD rules and their choices.
  • See themselves listed as beneficiaries on an account and immediately transfer it into their own names.
  • Go to the custodian asking what to do, are given a check and then immediately cash and deposit it in their own accounts.
  • Do what they mistakenly think is a tax-free rollover to their own IRAs.
  • Just can't wait to get their hands on the IRA money or are influenced by a spouse or some other third-party to grab it and spend it!
  • Yank the IRA money out too quickly - - resulting in what we call the “blowout” - - may force a family to pay all the taxes up front and lose over one-third of the IRA’s future value - - literally throwing away hundreds of thousands of dollars, or even millions!

Kyle Wynn & Associates, PLLC

This New IRA Tax "Stretchout" is Not Automatic!

In other words, an inherited IRA not only needs to take advantage of "stretchout", but needs
protection too -- the kind that a trust can provide.

Even if the IRA Owner Has Smart, Responsible Beneficiaries
And Thinks the "Stretchout" Is Not a Concern, Consider This…