What are the key estate planning considerations for qualified retirement plan benefits and IRAs?

Both estate tax and income tax results should be considered in planning qualified retirement plan benefits and IRAs. Both IRAs and qualified retirement plan benefits are includible in a plan participant’s or IRA owner’s gross estate; however, if those benefits are willed to the participant’s/owner’s spouse, the marital deduction will eliminate estate tax on such amounts at the time of the participant’s/owner’s death. Accordingly, estate planning for qualified retirement plan benefits and IRAs centers around the designation of beneficiaries. Because large amounts of money are sometimes transferred from tax-qualified retirement plans and IRAs, the choice of beneficiary can be very important.

EXAMPLE¬†27-1 A participant in a tax-qualified plan dies. Her husband is the beneficiary of the plan benefits, which equal $1.5 million. That amount is not includible in the participant’s gross estate due to the operation of the marital deduction. If the plan benefits are paid to the participant’s estate, however, the $1.5 million is includible in the participant’s gross estate and potentially subject to estate tax (unless the participant’s entire estate is bequeathed to her spouse).

REFERENCE: Estate and Retirement Planning Answer Book by William D. Mitchell ©2013 Wolters Kluwer. All rights reserved


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