Re: Take distributions from IRA or from taxable accounts at retirement?

From: Jeff Salisbury <jeff.salisbury@xmission.com>
Subject: Re: Take distributions from IRA or from taxable accounts at retirement?
Date: Mon, 10 Jan 2000 18:03:28 -0700

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A persfin member wrote:
> 
> >The children's ability to inherit the IRA as an >IRA for them, without it
> >coming out and being taxed, is also eliminated.
> 
> Can anything be done about existing IRAs?
> As the child I stand to inherit an IRA of about $50,000, probably within the next
> 2 years (terminal illness).  The IRA is setup at a brokerage and 
> holds 3 mutual fund accounts.  I have power of attorney for the parent
> in whose name the IRA was established.  The estate will not exceed the
> federal threshold, but I'd love to convert the IRA to an IRA for 
> myself (avoiding taxation at ordinary rates).
> Any suggestions?

The IRS doesn't allow you to roll it into your IRA.  However, they allow
your brokerage firm to roll it into a "beneficiary" IRA.  When this
happens, you are immediately forced to take minimum distributions based
on your life expectancy regardless of your age.  You are free to take
out more each year, but not less than the min distributions.  This
accomplishes two good things:

1. You are not forced to liquidate the account in a short time and pay
income taxes at a higher rate.

2. The bulk of the money can continue to grow tax defered for many
years.

The problem is that many brokerage houses and IRA custodians don't allow
for the continuation of beneficiary IRAs.  So, you will want to make
sure that yours does.

Jeff


> 
> As an aside, I've been managing this parent's affairs for over 3 years now.
> For those in my situation I strongly suggest using a revocable living trust.
> Designate the child as a co-trustee instead of a successor trustee so they can
> begin managing affairs immediately - no need for a declaration of 
> incompetence as to the grantor/trustee.  All non-qualified assets 
> are held in the trust, with the exception of a joint bank account 
> for monthly expenses.   Distributing assets (if any left) at death is 
> a simple matter of signing checks.  No probatable assets to report 
> to the court and (most important to us) disposition of the estate 
> remains private.  Should be less than $1000 for the trust and a 
> pour-over will (some prefer backup wills instead of the pour-over will).
> 
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