Choosing to name your children as beneficiaries over your IRA is a nice gesture. But without proper planning, it can become a huge tax burden that could result in the IRS getting more of their inheritance money than you intended. So, what can you do — as a parent — to help minimize the tax bill?
First and foremost, it’s worth noting that you can’t get around paying taxes on a traditional IRA. Whether you’re the initial owner or a beneficiary, the IRS wants its cut. It seems simple enough, but what you may not realize is that the beneficiaries you name on your IRA will be taxed based on their tax bracket, not yours. Generally speaking, your children will likely be in a higher tax bracket than you — especially if you’re retired and they’re still working.
