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How to account for an IRA in an estate plan

New York residents can generally leave funds within an IRA to whoever they feel deserves it the most. If there is no person worthy of receiving the money, it may be possible to donate it to a charity. However, how an IRA is transferred generally depends on who is receiving it. For instance, if an IRA is left to a spouse, he or she could simply roll that money into his or her own account.

If a child or other family member is named as a beneficiary to an IRA, he or she may roll the money into an inherited IRA. This may be beneficial because those recipients would be able to stretch out the tax benefits for their entire lives. However, this may be moot if the child who receives the money needs it immediately. It is also important to note that the stretch provision isn't available if the child was not named as a beneficiary.

Leaving money to a charity may be ideal for those looking to minimize estate taxes. This is because the estate would likely be entitled to take a charitable contribution deduction. The charity would also benefit because it would receive the money tax-free. If a child or another heir as a beneficiary, that person would need to pay taxes when withdrawals are made.

When developing an estate plan involving an IRA or other assets, it may be worthwhile to consider the tax implications of any decision made. It may be a good idea to meet with an attorney who will understand what these implications may be. This may make it easier for an individual to make use of wills, trusts or other appropriate tools to create a plan that best meets his or her needs.

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