How Should I Protect My IRA?

An Individual Retirement Account (IRA) is most often one of the largest assets that an individual owns. Likewise, many people heavily rely upon their IRAs for future financial needs. So why are so many people not protecting this asset?

Considering the latest IRS required minimum distribution rules, more people are concerned about how best to protect one of their major assets for the next generation. If an IRA is left directly to your children or grandchildren, then they can withdraw and deplete the account quickly. These withdrawals would also cause them to incur unnecessary income taxes and eliminate the powerful benefits and protections of long term tax deferral. Now, thanks to a recent U.S. Supreme Court ruling, money in an IRA inherited left outright could be subject to creditors and divorce proceedings.

A trustee can be given the power to tap the IRA, if necessary, but also the ability to pay out as little as possible, so a $500,000 inheritance can wind up paying $2 million, $3 million, or more to the heirs over time.

For example, a trust may provide the individual beneficiary with greatly enhanced protection against loss of the inherited IRA to a spouse after a divorce, protect against the beneficiary’s own poor spending habits or money management skills, and may preserve a beneficiary’s needs-based government benefits such as SSI and Medicaid.

A trust may also reassure the original IRA owner that the right people will eventually inherit his IRA assets, rather than simply allow the owner’s (or beneficiary’s) surviving spouse to pass them on to a future spouse or children of another marriage.

Not every retirement trust is created equal, and since there are complicated IRS rules and regulations related to IRAs, it is important to speak with an experienced professional before finalizing any plans. If you would like to speak with an experienced elder law attorney regarding your situation or have questions about something you have read, please do not hesitate to contact our office at 1 (800) 680-1717. We look forward to the opportunity to work with you.

Disclaimer: The information provided above is for general informational purposes only and is not legal advice.