"We Want Our IRAs To Go To Our Daughters"

"My husband and I are retired and both age 77. We were both school teachers so we have our pensions and our social security. These cover our expenses and then some every month.

My question is about our IRAs. We both have rather large IRAs that we only take what we are forced to from every year. This year we don’t have to take anything and that’s good.

We want these IRAs to go to our two daughters. We heard recently that the tax laws changed and they will have to pay large income taxes when they get their inheritance.

Is this true?

Is there something my husband and I should be doing to prevent this from happening?"

The tax laws have changed and it will impact your daughters. How it will impact them is a very different question. Under the new law your daughters will be required to withdraw the funds you leave them in your IRAs by the end of the 10th year after they receive them. This may or may not present a problem to either of your daughters. It will depend on their specific, personal circumstances. There are some options you might consider:

Convert funds from your IRAs to Roth IRAs. You pay the income tax now and your daughters are off the hook later.

Secure a life insurance policy that will cover the income taxes your daughters might face. You might use your normal RMDs to cover the premiums on such a policy that could go to your daughter’s tax free.

You should consider a family meeting with a financial advisor. The proper course you choose is very dependent on a number of moving parts – some yours, some your daughters’, and some the tax laws.

Take your time, do your homework, and choose the option that best fits you.

Gene answers your neighbors financial questions on More than Money.

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