Planning Can Thwart IRS Designs on IRA
USA Today (10/10/00) Vol. 104, No. 40 p.3B; Block, Sandra

Advanced planning should lower the tax bill for the beneficiaries of individual retirement accounts (IRAs). Under current tax laws, all money stored in an IRA, 401(k), or similar retirement savings program, is tax deferred. But individuals who withdraw from the account are required to pay taxes on whatever they take out unless the money is enrolled in a Roth IRA. However, there are steps that people can take to minimize the tax penalty. Using a stretch-out IRA, people can control the amount of money the Internal Revenue Service (IRS) takes. A married person employing this strategy should make their spouse the primary beneficiary on their IRA, and in the event the spouse already has an IRA, he/she should do the same. In any case, both spouses can name their children or other heirs as contingent beneficiaries. The surviving spouses should then split the IRA into separate IRAs, making sure that one child is named as joint beneficiary for each account. Finally, at the time of the second spouse's death, each IRA passes to the child named as beneficiary, without going through probate.


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