IRA Estate Planning Basics for Virginia Residents

Several different types of retirement accounts, including 403(b) accounts, individual retirement accounts and 401(k) accounts, are often a part of individuals’ estate plans. These must be dealt with accordingly as it relates to passing these on to other parties.

The passing on of an IRA often requires filling out a beneficiary form with the IRA company directly, since these pass outside of probate and will related documents. Tax deferred retirement plans like IRAs are unique because unlike most inherited property, withdrawals from retirement accounts are taxed as income for the recipient.

A designated beneficiary is the person who is named by the plan participant as the formal beneficiary of the plan. When planning ahead for distribution of an IRA, it is important for the party owning the IRA to think about the potential tax ramifications for the beneficiary. Under a rule known as the five-year rule, the entire account balance in the IRA must be distributed within five years of the participant’s death, regardless of who receives these assets in the distribution.

Distributions under this five-year rule can be very expensive due to the eliminated possibility of extending tax deferral. If you plan to pass on an IRA to a beneficiary of your estate and need further information about how to appropriately plan for this, schedule a consultation with an experienced estate planning lawyer in Virginia to discuss these options.