Under 2 scenarios, an IRA can be taxed so heavily at death that little remains. The first situation is when the IRA owner names his estate as a beneficiary and a “stretch” IRA cannot be used. The other scenario occurs when an appropriate beneficiary is named but the IRA must be used to pay estate taxes in the case of an estate of $4 million with $3 million being an illiquid apartment building and a $1 million IRA.
Value of IRA |
$1 million |
|
Estate tax at 55% |
|
$550,000 |
Income Tax Computation: |
|
|
Value of IRA |
$1 million |
|
Less IRD |
$421,600 |
|
Income Taxable Amount |
$578,400 |
|
Combined Tax Rate |
45% |
|
Income Tax |
|
$260,280 |
Total Income and Estate Tax |
|
$810,280 |
The foremost expert on IRA planning, Ed Slott, CPA, says of estates that could pay estate tax (over $675,000 under current law), “ The best and most cost effective source of cash for estate tax is life insurance. There is no question about it. I do not sell life insurance, but often recommend it to provide liquidity…”
If you have never had a professional review your IRA plan, you could pay unnecessary taxes. By professional, we do not mean the people at the bank as we have found that they know little about IRA planning. Please check off the attached coupon to take advantage of the new beneficiary rules this year and to establish your IRA to get the most and pay the least tax.