The financial planning of an estate inclusion of retirement or pension fund assets permits an individual to protect accounts and other income from capital gains taxation prior to transfer to final beneficiaries at the end of the owner’s life. Most defined contribution plans allow an account holder to elect tax-deductible extension with transfer to an estate’s trust. Planned giving specialists can read on to gain insight into rollover of tax-exemption benefits with spousal trust transfers may affect estate contribution to a nonprofit charitable giving plan.
The federal Internal Revenue Service (“IRS”) Publication 590-B (2017), Distributions from Individual Retirement Arrangements (IRAs), provides income reporting guidelines for spousal rollover IRAs. The single most cited incentive for electing to extend tax-deductible extension of a defined contribution plan is the distribution period affording beneficiaries exemption from estate income tax separate from individual tax filing. Independent Retirement Accounts (“IRAs”) are estate planning vehicles that protect the distribution of trust transfer of tax-exempt benefits to a spouse on death of a defined contribution plan participant.
The ratio of required minimum distributions (“RMDs”) for determining the benefit from a defined contribution plan is calculated based on the estimated distribution period accorded by the Uniform Lifetime Table. RMDs are calculated during the life of the plan participant, resulting in generally more favorable IRS tax treatment of those assets during an estate holder’s lifetime. With exception of spouses who are protected by way of tax-exempt transfers, most states prevent distribution extension applying to beneficiaries to exceed a stipulated period.
For example, in some states RMDs calculated for spouse beneficiaries that are more than 10-years younger than the participant require use of the Joint and Last Survivor Table allowing for prolonged extension of the distribution period. On death of a spouse, final beneficiary assigned RMDs are subject to Single Life Table distribution period limits. Beneficiaries are generally restricted from the extended distribution period if they are not spouses. Designated beneficiaries can sustain higher capital gains taxation as result of RMDs.
After an estate owner passes, a surviving spouse can benefit from an IRS tax shelter exemption with spousal rollover IRAs. A special investment account product, spousal rollover IRAs treat the surviving spouse of the original plan participant as joint tenant of the account. Spousal rollover IRAs permit a participant to transfer the value of a defined contribution plan to an account under their own name, or withdrawal the full amount of the existing plan without institutional or tax penalties.
Remarriage of a spouse to an individual younger than 10 years or more in age, permits the surviving spouse with joint tenancy of a spousal rollover IRA containing the inherited the assets of a decedent spouse’s defined contribution plan, distribution period extension. Spousal rollover IRAs subject to joint tenant directive to extend the distribution period, afford the new spouse beneficiary the full value of account proceeds when the estate comes into effect. In this case, RMDs are calculated based on the Joint and Last Survivor Table.
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Trusts with defined contribution plan account assets are guided by federal and state rules of estate taxation, affording tax-exempt transfer of distributions to spousal rollover IRAs.
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