How Do You Leave an IRA to Your Heirs in New Jersey
Do you have significant savings in an Individual Retirement Account (IRA)? You may have questions about how you leave these retirement savings to the benefit of a spouse, child, or other loved one. At Poulos LoPiccolo PC, we provide solutions-focused estate planning representation. Within this article, our Monmouth County estate planning lawyer highlights the key points to understand about leaving an IRA to your heir in New Jersey.
What is an Individual Retirement Account (IRA)?
As explained by the Internal Revenue Service (IRS), Individual Retirement Accounts (IRAs) allow people to make “tax-deferred investments” to provide support in their retirement. There are two types of IRAs:
- Traditional IRA: With a traditional IRA, people can make pre-tax contributions. In doing so, they reduce their taxable income for the year the contributions are made. Taxes on earnings are deferred until withdrawals actually begin.
- Roth IRA: In contrast, with a Roth IRA, people fund their account with after-tax dollars. The contributions do not provide a tax deduction in the year made—but withdrawals in retirement are tax-free as long as certain conditions are met.
You Can Leave an IRA to an Heir Through an Up-to-Date Beneficiary Designation
An IRA can be a very important financial asset. If it is part of your estate, you should make provisions to make it as easy as possible for your heir to inherit it when the time comes. Notably IRAs can generally avoid probate in New Jersey. How does it work? You can ensure your Individual Retirement Account (IRA) is passed on to an heir by keeping your beneficiary designation up-to-date. It is a direct method of inheritance that bypasses the potentially lengthy and complicated probate process. By naming a specific beneficiary—whether a spouse, child, other loved one, or even a charity—you will make it easier for them to inherit the account.
Note: What happens if a person does not have a beneficiary designation on the IRA? The short answer is that their IRA will likely be left to their estate. In effect, this means that the IRA will be forced to go through New Jersey’s probate process.
Be Prepared: IRS Regulations for Inherited IRAs
There are specific rules and regulations in place for beneficiaries who inherit IRAs. IRS regulations for inherited IRAs specify that non-spouse beneficiaries must either withdraw the entire account balance within 10 years of the original owner’s death. A spouse beneficiary may roll the IRA into their own—thereby deferring distributions until they reach retirement age.
Call Our Monmouth County Estate Planning Attorney Today
At Poulos LoPiccolo PC, our New Jersey estate planning lawyers invest time and resources into every case. If you have any questions about IRAs and inheritance, we are here to help. If you have any specific questions or concerns about IRAs and estate planning, please do not hesitate to contact us today for a confidential case review. Our firm provides estate planning support in New Jersey.
Source:
irs.gov/retirement-plans/individual-retirement-arrangements-iras
