According to the Investment Company Institute, the use of IRAs for retirement saving has increased in the past decade, with $6.5 trillion invested in traditional and Roth IRAs. But how much of those assets will pass beyond the primary beneficiaries to the next generation? Currently, not much. Studies show that individuals who inherit IRAs spend those assets within two years. If you have invested in an IRA and want those assets to last for future generations of your family, then you should consider a trusteed IRA.
The trusteed IRA is a traditional IRA with some estate planning advantages of a trust, and are designed to provide a long-term distribution plan for withdrawals to benefit more than one generation of beneficiaries. Trusteed IRAs are less expensive than setting up a trust, but generally a bit more expensive to administer than a traditional IRA.
Trusteed IRAs are a wonderful tool for those who want to control how their IRA assets are distributed after they are gone. With traditional inherited IRAs, the beneficiary has full say over what happens to the IRA assets he or she inherits. And since most elect to deplete an inherited IRA, future generations will likely never benefit.
A trusteed IRA allows the original owner to dictate how withdrawals can be made. For example, by allowing only the minimum required distribution that the IRS requires heirs to take every year, you can stretch out your IRA over multiple generations since investments grow tax-deferred (traditional IRA) or tax-free (Roth IRA).
A trusteed IRA may also be attractive for blended families, when you want to ensure your IRA assets pass to your children and their progeny instead of going to your second spouse’s new spouse or family.
Another benefit of a trusteed IRA is that if you become incapacitated, the trustee can assume control of the investments and distribution of assets on your behalf without the necessity of having a guardian appointed.
If you would like to learn more about the benefits of a trusteed IRA, call our office today to schedule a time for us to sit down and talk about a Family Wealth Planning Session, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security.