New IRA Regulations
On January 11, 2001 the Internal Revenue Service issued new Regulations (IRS REG. 130477-130481) that has swept away some of the headaches people have had in trying to plan estate and/or retirement spending around big IRA’s. However, the new regulations do not eliminate the need for careful tax planning.
The complexity of IRA taxation has to do with the fact that the government wants to force people over 70 ½ to take money out of these accounts, even if they don’t need the money, and also extracts both estate and income taxes from people who inherit IRAs.
Under the new regs, it is vastly easier for taxpayers to set up “stretch-out” IRAs---that live long after the owner dies. No longer will IRA owners have to guess who will die first, husband or wife, to reap the maximum IRA shelter. People who made mistakes under the old rules can even correct them.
One problem that remains is deciding who pays the estate taxes on an inherited IRA. If you write your will wrong you second spouse, could be forced to pay tax on the IRA inherited by your children of your first marriage.
Beware, too, of leaving an IRA to an estate instead of a named heir. Such a move could still force IRAs through probate, where they would be subject to creditors and other claims. The rules also don’t change how IRAs interact with trusts. Some forms of Q-tip trusts can kill IRAs, for example. And there’s nothing to help couples stuck with a related problem: one large IRA, few other assets and desire to take advantage of the full $675,000 estate-tax exemption for both spouses.

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