Inheritance Strategies for Tax Deferred and Tax Advantaged Plans

[cippy1025]

I have a 401K plan at work. My wife has a 403 (B), 403(b) Roth and 457(b) at her work. We also have a couple of Roth IRA's. What is the best strategy for my Kids to adopt when they eventually inherit balances left over in these accounts. I would like to have these discussions with our 2 adult Boys now. Is there we can do something now that would be helpful for them in the future. 

[DavidD66 · Accepted solution]

Distribution strategies would depend based on multiple factors like he beneficiary's tax bracket, income needs, etc.  There aren't a lot of options given recent tax law changes.

The SECURE Act changed the rules for distributing assets from an inherited IRA upon the death of an IRA owner.  The SECURE Act requires beneficiaries to withdraw all assets from an inherited IRA or 401(k) plan by December 31 of the 10th year following the IRA owner's death. Exceptions to the 10-year rule include payments made to an eligible designated beneficiary (a surviving spouse, a minor child of the account owner, a disabled or chronically ill beneficiary, and a beneficiary who is not more than 10 years younger than the original IRA owner or 401(k) participant). These beneficiaries can "stretch" payments over their life expectancy. Discuss the potential tax implications and distribution options of this accelerated withdrawal schedule with your tax advisor.

If a Roth IRA owner dies, the minimum distribution rules that apply to traditional IRAs apply to Roth IRAs as though the Roth IRA owner died before his or her required beginning date. Generally, the entire interest in the Roth IRA must be distributed by the end of the fifth calendar year after the year of the owner's death unless the interest is payable to a designated beneficiary over the life or life expectancy of the designated beneficiary. 

For more information, see IRS Publication 590-B