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Last month, we covered the startling fact that inherited IRAs are not asset protected, and now we will move on to how you can asset protect your heirs’ inherited IRAs.

The Fox Guarding the Hen House

A second major problem in planning for qualified plans and IRAs is the “found money” syndrome.

Those who put the money in IRAs and qualified plans are often loath to take out even the required minimum distributions. Their beneficiaries often do not share that inhibition. Instead, they view their inherited IRA or qualified plan account as found money to be withdrawn and spent. Too often that spending is for the unwise and imprudent satisfaction of material desires and whims.

The symptom of this syndrome that the advisor typically sees is the rapid loss of assets under management. The good news is that the “found money” syndrome can be prevented.

The Retirement Plan Trust

Can you asset protect your beneficiaries’ inherited IRAs and qualified plan accounts and ensure that your beneficiaries receive the maximum stretch out benefit of tax-free compounded growth? The answer is a resounding, “YES!” The Retirement Plan Trust can do just that.

The Retirement Plan Trust is designed to weave carefully through the many pitfalls that exist in the law.

Withdrawals after the Owner’s Death

After the owner/participant’s death, when RMDs must begin and how much they must be is determined by different sets of rules. Those rules can be established in the qualified plan document as long as they are no more lenient than those established by the IRS for IRAs. Historically, many qualified plans did not offer inheritors the option to stretch their withdrawals out over their actuarially determined life spans. Employers, finding no benefit in administering accounts for beneficiaries of deceased employees, often required inherited benefits to be immediately distributed or taken within just a few years. To ensure that beneficiaries of qualified plan participants could take advantage of the maximum stretch opportunities allowed by the tax laws, Congress has now required that, effective January 1, 2010, all qualified plans must offer plan participants’ beneficiaries the option of rolling their inherited accounts over into an IRA or a Roth IRA. Therefore, we will discuss only the rules for distributions from inherited IRAs and inherited Roth IRAs (which are the same).

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