IRA on Death, IRD, Taxes and Stretch IRA

How the IRA distribution is dependent upon the IRD (Income In Respect of a Decedent). What does Stretch IRA and estate taxes have in common?

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Solutions for your Jumbo IRA and Estate Tax Problems

I want to talk to you about another matter - that is, traditional IRAs. How do you get a million dollar IRA? Well, let's assume for a minute if you were an executive of a major company, and you were just laid off, and you have a million dollars or more in your qualified pension plan, like a 401k, a retirement plan, etc. If you have a million dollars or more, it is what we refer to as a Jumbo IRA. If you also have an estate tax problem, there is a double tax. I'll talk about that in a minute.

If you ask your accountant, your lawyer, your financial planner and ask, "Hey Joe, what's the best way that I can minimize my taxes on my traditional IRA? It's gotten up there and I don't need the money yet. I don't need to go out there and start taking the money out. I'm over the age of 59 1/2, I don't need the money, I have other sources of income, so I'm going to let it grow and leave it there." He's going to come back to you and say, "Stretch IRA, stretch IRA!" What does that mean? In simple terms, it means instead of making distributions to you, the owner of the IRA, the beneficiary of the IRA is your children and your grandchildren; you're going to name a beneficiary who is younger than you. It can be your children, your grandchildren so the required distribution is going to be over their lives. Obviously, they are going to be able to have a greater life than you because the assumption is that you have so many years left on your life, your children have more years on their life (after you), and your grand children have an additional amount of time left on their life (after your children). So you'll stretch the payments and the assumption is that stretching the distributions from the IRA, the individual is going to be in a lower tax bracket. And that's going to work out fine; but if you are having an estate tax problem when you die, we look at what assets you own. The fair market value is what is included in your estate, not what you paid for it. On the date of death, what do you own at its fair market value?

401K Rollover to Traditional or Roth IRA with Estate Tax Problem: Internal Revenue Code Section 691c (Income Respect of a Decedent)

If you have an estate tax problem, and you have a traditional $1 to $3 million dollar IRA, it's going to be double taxed, I can guarantee you that. It's a guarantee from me to you that you're going to be double taxed. On the date of death, the trigger that is going to guarantee your double taxation is, number one, Internal Revenue section 691c. Look it up, that is called income in respect of a decedent, IRD. It is a very important code; this is what triggers the income tax. Essentially, here's what it says: When you took your 401k rollover to IRA, you rolled your 401k, pension or other pension money into a traditional IRA. You rolled into it because you wanted to avoid the immediate taxation. But the bottom line is this: you have a million dollar IRA, and you have an estate tax problem which triggers the event of section 691c, income in respect to a decedent or IRD. What this section states is you saved money, we didn't tax you and we now want to tax you; hence, there is a forced distribution at 70 1/2 years old.

Read part 2 of this two-part series discussion on the best IRA retirement plan investing: Best IRA Rescue-IRA Retirement Plan Investing

Rocco Beatrice, CPA, MST (Master of Science in Taxation), MBA (Master of Business Administration), BSBA (Management/Accounting), CWPP (Certified Wealth Preservation Planner), CMMB (Certified Mortgage Broker), CAPP (Certified Asset Protection Planner), Managing Director, Estate Street Partners, LLC. Mr. Beatrice is an asset protection, award-winning trust, estate planning and tax expert.

If you are seeking for the best return on your IRA and Roth IRA investments while reducing your taxes then call us now for your initial, completely FREE, no obligation, no sales pressure, 100% total & complete client privacy consultation. Call us toll-free now at 888-93-ULTRA (888-938-5872)!

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