Retirement Planning & IRA Estate Strategies Flashcards

When a surviving spouse inherits a traditional IRA, which unique option is available that is NOT available to other beneficiaries?

Answer: They may roll the inherited IRA into their own IRA and treat it as their own

Surviving spouses have the exclusive right to roll an inherited IRA into their own IRA, allowing them to treat it as their own and delay RMDs until they reach the applicable RMD age.

What is the primary estate planning advantage of converting a traditional IRA to a Roth IRA?

Answer: It allows beneficiaries to receive income-tax-free distributions

Roth conversions allow heirs to inherit an account that produces income-tax-free distributions, maximizing the after-tax value passed to beneficiaries even though income taxes are paid at the time of conversion.

What is an 'accumulation trust' in the context of naming a trust as an IRA beneficiary?

Answer: A trust that can retain IRA distributions within the trust rather than passing them directly to beneficiaries

An accumulation trust retains IRA distributions within the trust rather than requiring immediate pass-through to beneficiaries, providing asset protection and control over fund usage, though retained income is taxed at compressed trust income tax rates.

What is Net Unrealized Appreciation (NUA) and when is it relevant in retirement planning?

Answer: The appreciation on employer stock distributed in-kind from a qualified plan that is taxed at capital gains rates

NUA is the difference between the cost basis and fair market value of employer stock distributed in-kind from a qualified retirement plan; this appreciation is taxed at lower long-term capital gains rates rather than ordinary income rates.

Unlike assets that receive a step-up in basis at death, how are inherited traditional IRA distributions generally taxed to the beneficiary?

Answer: As ordinary income to the beneficiary in the year of distribution

Inherited traditional IRA distributions are taxed as ordinary income to the beneficiary because the original contributions were made on a pre-tax basis; no step-up in basis applies to retirement accounts.

What are the requirements for a trust to qualify as a 'see-through trust' (or look-through trust) for IRA beneficiary purposes?

Answer: The trust must be valid under state law, irrevocable at death, have identifiable beneficiaries, and provide IRA documentation to the plan administrator

A see-through trust must be valid under state law, become irrevocable at the owner's death, have identifiable individual beneficiaries, and provide required trust documentation to the plan administrator by October 31 of the year following death.

Which retirement account type allows continued contributions and delayed RMDs past the standard RMD age if the participant is still actively employed by the plan sponsor?

Answer: 401(k) through the current employer

Employees still working can continue contributing to their current employer's 401(k) plan after reaching the RMD age and, under SECURE Act 2.0, can delay RMDs from that plan until actual retirement.