According to PersonalCapital.com, the average person currently at age 60 has anywhere between $655,500 and $2.5 million dollars in their 401K. American’s just five years older have between $743,000 and $3.5 million. For many Americans, their next largest asset outside of their home is their retirement account. During our lifetime, these assets are shielded from creditors except in extreme circumstances. This protection used to survive even death. Before a recent Supreme Court decision, if you left your retirement account to your children or heirs then it still had the same protection.
Once you reach age 70 1/2, the IRS requires you to take Required Minimum Distributions. Your money grows tax deferred while you worked towards retirement. However, the government wants a chance to tax that money. So at age 70 1/2 you will have to take a certain amount out each year until you have taken it all by the end of your life expectancy. This does not end when it passes to your children. Even if your children have fifteen years between them, the inherited money will must be withdrawn based on the life expectancy of the oldest!
It possible to create one or more retirement trusts to stretch this time frame out. You could potentially have each portion go out at that child’s life expectancy, This is preferable to everyone taking it based on the oldest beneficiary’s age. This can make sure that your loved ones are not required to receive that money when they are older and mature enough to handle it.
If you would like to know more then please give us a call or you can email us with any questions.