How Do Roth Conversions Impact Inheritance/Legacy?

Questions answered: What are the implications of inheriting an IRA? Should you use a CRUT? How do different assets affect inheritance?

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Key Takeaways:

Understand your priorities.
Inherited IRAs:
- When you turn 72:
  - You have a required minimum distribution.
    - If you have money in a pre-tax account, you are required to take out a minimum amount each year.
- If you inherit an IRA:
  - You have a 10 year rule.
    - You don’t have to take out a specific yearly amount.
    - You have until December 31st in the year of the 10th anniversary of the account owner’s death to fully distribute the account.
      - The exceptions: you are a surviving spouse, you’re disabled or chronically ill, you’re a child under the age of majority, or you’re fewer than 10 years younger than the account owner.
    - This applies to both traditional and Roth IRAs.
The legacy impact of different assets.
- Brokerage assets are tax-free on the date that it’s inherited.
Charitable Remainder Unit Trust.
- Give a gift to the CRUT, the CRUT pays an income amount to a beneficiary, when the beneficiary is no longer alive, the remaining amount goes to a charity.
  - In some circumstances, you could name the CRUT as the beneficiary of your IRA, and your child as the income beneficiary of the CRUT.
- You don’t want the beneficiary to be too old or too young.
- This makes sense if the beneficiary is in a high tax bracket.
- You need to expect long-term returns inside the CRUT.
- You need to be charitably inclined.