Naming Minors as IRA Beneficiaries

A minor can be a beneficiary of an IRA, and the advantages are many.

When an IRA is inherited, the required withdrawals can be stretched across the life expectancy of the individual who is inheriting the IRA. This defers taxes until withdrawals are made.

If an IRA of $100,000 is left to a granddaughter born the year you die, her life expectancy begins at age 1, the year after your death. Using the IRS’s life-expectancy table for inherited IRAs, her life expectancy is 81.6 years, which means she could stretch the account withdrawals across eight decades. The first required withdrawal would be $1225. If the IRA has an average growth rate of 8% during her life expectancy, the account would be worth $8 million by the time she must empty the account at age 83.

Because a minor cannot inherit an IRA in his name, a trust would need to be put in place so the trustee could handle the account and make the annual withdrawals on the child’s behalf.

Consult your estate planning attorney for further information.

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