March 11, 2026

What Do I Do With My IRA?

Alex and Anya are a married couple in their early 50s.  Anya is a business consultant, and Alex is a marketing executive.  They’ve decided it’s time to revisit their estate plan, originally put in place 15 years ago (when their kids were little).  Fortunately, they feel they’re in good hands with their accountant, financial advisor, and estate planning attorney, and are confident with the new plan these advisors have put together.  However, there is one piece of their plan that still has them a bit confused:  What are they supposed to do with their IRAs?

They have managed to save quite a bit, and are currently making “catch-up” contributions to increase their savings.  With good investment advice, they expect to ultimately have more than they need to live on after they retire, so they want to make sure they have a good plan in place to pass any remaining IRA benefits on to their kids.  They’ve gotten advice on this from each of their trusted professionals, but still aren’t quite clear on what they’re supposed to do.  Why is this so hard to figure out?!

What’s the Deal with IRAs?

IRAs and 401(k)s (which we’ll refer to as “retirement benefits” or “retirement accounts” for ease), require special consideration by tax, financial, and estate planning advisors.  Why?  Because they can be such valuable investments that we want to preserve and plan for them, yet they’re also subject to a complex web of tax rules.  What makes these assets so valuable?  A traditional (i.e., non-Roth) IRA or 401(k) is tax-deferred, meaning that it is allowed to grow and accumulate income tax-free until money is withdrawn from the account.  For those who start saving early, years of tax-free compounding can lead to substantial growth, causing the retirement benefits to outperform other investments that generate income tax.

Ideally, these retirement accounts would remain untouched for as long as possible, because of this tax advantage.  However, in order to preserve the status of these accounts as retirement savings, rather than a tax-preferred method of accumulating wealth for future generations, U.S. tax law requires the account owner to begin taking distributions at a certain age, currently 73 (for some, these distributions can be postponed until retirement, if occurring later).  If you are close to or over that age, you likely are familiar with these “required minimum distributions” or RMDs.

Similarly, if you do not withdraw all of your retirement funds during your life, the beneficiaries who inherit them will also be required to take distributions from the account.  How much do your beneficiaries have to withdraw each year and for how long?  That’s where things get complicated.  Prior to 2020, individual beneficiaries were able to “stretch” distributions from inherited retirement accounts over the beneficiary’s life expectancy.    It was also possible to name a trust as beneficiary and stretch RMDs over the life expectancy of the oldest trust beneficiary if the trust met certain requirements.  However, a change in the law in 2020 limited this life-expectancy “stretch” to only certain beneficiaries, requiring other beneficiaries to withdraw the funds within a shorter period of time, effectively accelerating the payment of income tax and lessening the benefit of the tax deferral.  The 2020 law (known as the SECURE Act) also introduced a complex set of rules for determining which trust beneficiaries are “counted” for purposes of determining RMDs for trusts named as retirement account beneficiaries.

This change in the rules limited some of the advantages of planning for retirement benefits, and made it difficult to determine how long beneficiaries will be able to stretch RMDs in many cases.  These changes have made it challenging for attorneys and financial advisers to know how to best plan for retirement benefits, often leaving clients understandably frustrated and confused.

Some Good News

Fortunately, there are still ways to maximize the benefits of your IRA or 401(k), both during your life and for your beneficiaries who may inherit them after your death.  Your estate planning attorney and other advisors can work together to recommend the best way to plan for these assets.  Here are a few points to consider when you talk with your estate planning team about your retirement benefits:

1. For those who are charitably inclined, traditional IRAs and 401(k)s can be a great source of funding for charitable bequests in your estate plan.  This is because the beneficiary of those accounts will have to count the money as taxable income when it’s withdrawn from the account, but a qualified charitable organization is exempt from income tax.  So, while a $500,000 IRA may actually be worth $350,000 to your child or spouse after accounting for income tax, it is worth the full $500,000 to a charity that will not pay tax on it.  Using your retirement benefits to fund charitable gifts and leaving other assets to your family members can provide tax-efficient results for everyone.
2. Additionally, “Qualified Charitable Distributions” from an IRA can provide income tax benefits to the IRA owner during life. For those who do not need their annual RMDs and are otherwise inclined to give to charity, funding annual charitable gifts with distributions directly from an IRA can be a strategic way to maximize the tax benefits of charitable giving.
3. Some beneficiaries still are able to stretch RMDs from inherited retirement benefits over their life expectancy. Those beneficiaries include (among others) a surviving spouse and a beneficiary who is disabled or chronically ill.  For clients with beneficiaries who fit into those categories of “eligible designated beneficiaries,” it is important to ensure that the estate plan is structured to take full advantage of those beneficiaries’ ability to stretch RMDs.
4. In addition to the life-expectancy stretch, a surviving spouse who inherits an IRA or 401(k) receives certain advantages over other beneficiaries, including the ability to roll the account into the surviving spouse’s own IRA, and to potentially delay taking RMDs if the deceased spouse was not yet required to take them. It is important to understand these advantages when selecting beneficiaries.
5. Despite the complex rules relating to trusts as beneficiaries of retirement benefits, often it still makes sense to name a trust as beneficiary. Trusts can provide benefits such as protection against creditors, maintaining inherited property as separate property of the beneficiary (rather than part of the marital community with the beneficiary’s spouse), management of inherited funds, and more.  If the plan otherwise calls for leaving a beneficiary’s property in trust, it typically should be structured so that the retirement accounts pass in trust as well.  Your estate planning attorney can ensure the trust contains the provisions needed to maximize the period for taking RMDs, to the extent possible.

Estate planning for retirement benefits is a subject that is undoubtedly complex and can be confusing.  If you’re not sure what to do with your IRA or 401(k), talk to an estate planning professional who can help you make sure you you’ve got a plan in place that works for you and your family.