Broker Check

IRA's: Control from the Grave

Typically, financial planning does not involve dealing with the ethereal but there is a way, however, to create a “financial” ghost of yourself.

Far too few people review their beneficiary designations often enough. Even fewer think beyond “who gets what”. But there is another aspect to your legacy planning that most people, even advisors, don’t know about, namely: dictating how and when your remaining IRA assets will be paid out at the end of your life.

In the absence of a well-thought-out arrangement, it’s the beneficiaries who get to decide which payout option they want when they inherit your IRA assets. There are three options, namely: 1) a lump sum (all taxable in one year), 2) a five-year payout (taxable as it’s paid) or 3) income annually based upon their life expectancies (again, taxable as it’s paid).

For annuities, this can be done by filing the proper form. But for brokerage accounts, no such form exists. Trust departments can help clients set up a payout plan for their IRA assets while they’re alive.

There may be several reasons why you want to dictate the terms of the payout. In my experience, I’ve seen parents with financially irresponsible children, morally irresponsible children and parents who want to protect their legacy for their children and subsequent generations without any risk of assets being diverted in the event of divorce.

There are tax considerations as well. A lump sum distribution may be taxed at the highest rate even if the beneficiary is a low earner and in a low tax bracket. Stringing out the payments also strings out the tax bite. Moreover, payments over the decades allow the funds to remain invested. The annual (or monthly) payments can represent a lifetime of mortgage payments, family vacations or a means to save for college.

Spending a little time discussing how these options can pertain to your situation can save a lot in taxes and create a legacy that can last for generations.


Scott J. Menta, CFP, CLU, ChFC

Representatives do not provide tax and/or legal advice. Any discussion of taxes is for general informational purposes only, does not purport to be complete or cover every situation, and should not be construed as legal, tax or accounting advice. Clients should confer with their qualified legal, tax and accounting advisors as appropriate. Securities and investment advisory services offered through qualified registered representatives of MML Investors Services, LLC. Member SIPC. 6 Corporate Drive, Shelton, CT 06484, Tel: 203-513-6000