Kiplinger raised this point in its January edition with an article titled “Pass an IRA to Young Grandkids With Care.”
You see, an IRA is an asset that can swiftly and easily pass outside your estate by completing a simple beneficiary form. Once passed along, a beneficiary to your IRA can either withdraw the account all at once or keep taking withdrawals over time. Under the latter option, the beneficiary may withdraw money annually from the account just as a retiree takes Required Minimum Distributions. If the beneficiary is a grandchild, then the RMD will be based on their own birthdate rather than that of the retiree who owned the account.
A grandchild who wisely continues to take only the Required Minimum Distributions will harness the power of tax-deferred growth within the account. This can really add up, too. But what if you are not confident a young grandchild will act wisely with your IRA account? What then?
Kiplinger offers two ideas to help preserve your IRA legacy from a grandchild’s squandering. First, consider naming the grandchild as beneficiary and appoint a custodian to watch over the account. Alternatively, consider leaving the IRA to the grandchild by way of a trust. Both options give leeway while giving direction, but also come replete with their own advantages vs. disadvantages.
If you have an IRA that likely will be around to give, then be sure to carefully evaluate your options. To that end, the Kiplinger article is a good place to start.