Many financial planning clients have substantial IRAs, yet they have no need to tap the account for retirement income. Generally, they’ll take only required minimum distributions (RMDs) after age 70-1/2, to reduce the tax bill on unneeded income. This approach may result in a sizable traditional IRA being passed down to the next generation, who also must take RMDs.
“Often, our clients’ children are doing very well financially,” says Marjorie Fox, co-founder of FJY Financial, an investment management and planning firm in Reston, Va. “The income from the inherited RMDs would be added to the children’s other income, and might be taxed heavily.”
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