Swimming Upstream

Under current tax rules, a designated beneficiary who inherits an IRA can take required annual distributions over his or her lifetime, allowing income tax on the withdrawals to be spread out, possibly over decades.  There have been suggestions in recent years that the “stretch” IRA be eliminated for beneficiaries other than surviving spouses.  If that were to happen, beneficiaries would have to empty an IRA — and pay income tax — within a few years of the IRA owner’s death. If the stretch IRA disappears, or looks like it might, owners of traditional IRAs might consider converting a portion to a Roth.  Although income taxes will be owed, any qualified distributions from the Roth in future years would be free of tax.  Ask your financial adviser how much you can convert without pushing you into a higher tax bracket.  This can be done over several years, to keep income taxes down.

If you’re currently tapping your taxable accounts and leaving your IRA to grow tax-deferred, it might make sense to rethink that strategy.  While you will owe tax at ordinary income rates on withdrawals from an IRA, you can allow your taxable account to grow.  If you do need additional income from your taxable account in the future, you’ll likely be subject to capital gains taxes at a lower rate (generally 15%).  Plus, anything left in taxable accounts at death gets a stepped-up basis, so heirs can sell with little or no tax owed.  By contrast, heirs will pay tax at ordinary income rates when they take distributions from an IRA.  You can name charity as the beneficiary of your IRA, completely avoiding the taxes that family members would owe, or use the funds to establish a charitable remainder trust or charitable gift annuity that would make payments to loved ones, with no loss to taxes.


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Contact Information

Joe Woodward
Director of Institutional Advancement
(909) 482-5220


The materials contained on this website are intended only to show some ways by which you can make a charitable gift or bequest and thereby minimize federal tax liabilities, as authorized by the Internal Revenue Code. All examples are of a general nature only and should not be applied to your specific situation without first consulting your attorney or other advisers.