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Phone: 201-345-3018

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How to handle an IRA with estate planning

Many New Jersey residents wish to pass down their retirement savings to their surviving spouse. In order to make the best possible estate planning choice, it is important to understand how investment vehicles such as IRAs are handled with estate plans. Making the right choice can give a surviving spouse a great deal of financial peace of mind, which is truly a gift of love that one spouse can provide to the other.

Some couples will choose to name each other as the beneficiary of their IRA accounts. Under this approach, the IRA would pass on to the surviving spouse to be rolled into that party's own IRA account. This method, known as a straight rollover, is a good fit for couples who are the same age. The inheriting spouse will receive all of the same privileges and protections that the deceased spouse enjoyed. The downside is that a surviving spouse would need to exceed 59.5 years of age prior to making a withdrawal from the account in order to avoid penalties.

Another option is to refrain from naming the spouse as the beneficiary of an IRA and simply pass the account down to that party by means of a will. In this way, the surviving spouse would be required to take a minimal annual distribution from the account, but the remaining funds would continue to grow free of taxation. This is a good choice for couples where one spouse is significantly younger than the other and might need to access the asset prior to retirement.

When considering these choices, it is important to note that this is just one way in which estate planning can be customized to suit the needs of a New Jersey client. IRAs can also be handed down with a trust, which is a good fit for some families. The important thing to keep in mind is that there is an estate planning solution available for every set of needs.  

Source: onwallstreet.com, "Estate Planning for Tax-Deferred Investments", Alexandra Smyser October, Oct. 30, 2015

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