If you have a traditional IRA that's large enough for you to plan on passing it on to a beneficiary, you're likely interested in finding out how to make the IRA last as long as possible. As you probably know, the IRS requires owners of traditional IRA's to take a required minimum distribution (RMD) from the account each year, beginning on April 1 of the year after you reach age 70 ½. The amount of your RMD will vary each year, because it's determined by taking the balance of the account on December 31st of the previous year, and dividing that number by the number of years left in your life expectancy, as determined by the IRS.
Roth IRA's differ from traditional IRA's in a number of respects, with one of these differences being that the Roth IRA does not have an RMD. So, it may make sense for you to convert your traditional IRA to a Roth if you are trying to avoid the RMD, along with other considerations. When you do this, keep in mind that you'll have to pay income tax on the amount you convert, but you won't be required to touch the money in the account.
The rules are different for beneficiaries, though. Whereas you, as the owner of the account, have no RMD associated with your Roth account, your beneficiary will have to take a required minimum distribution each year. Just like for a traditional IRA, the beneficiary's RMD will be calculated based on his or her life expectancy, so it makes sense to choose a young beneficiary if you want him or her to get the maximum benefit from the account. You'll also want to choose a contingent, or alternate, beneficiary. This way, if your primary beneficiary passes away before you do, your IRA passes to another person and not to your estate. You don't want your IRA to pass to your estate because, worst-case scenario, this could result in a requirement that the account be cashed out completely within five years.
If you're worried that your chosen beneficiary will cash out your IRA instead of maximizing its value by taking only the required minimum distributions, there are some estate planning strategies you can use. Talk to your estate planning attorney to find out how to make sure your IRA - and your beneficiary - are protected.
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