How Long Do IRA Plans Last?

As your family grows your IRA can become part of your estate plan

As your family grows your IRA can become part of your estate plan

How long your Individual Retirement Account "can" last, based on Internal Revenue Service requirements, depends on the type of plan you have -- traditional or Roth. How long your plan "will" last also depends on how much you contribute, the investment vehicles you choose and how much you take out, either before or after age 59 1/2, when you can make penalty-free withdrawals.

Contributions

A traditional IRA allows you to contribute with pre-tax dollars, but distributions are taxed as ordinary income. Roth contributions are after-tax, but qualified distributions are tax-free. Both require that you have earned income, which includes wages, tips, commissions and self-employment income, to contribute, but you can't contribute to a traditional IRA forever. You have to stop when you reach age 70 1/2. There is no age limit for a Roth. You can continue making contributions as long as you have qualified earned income, provided your income does not exceed certain limits.

Distributions

With a traditional IRA, you have to start taking required minimum distributions by April 1 following the year in which you turn age 70 1/2. After that, you have to take RMD by Dec. 31each year. Assuming you waited to take RMD, instead of beginning distributions sometime after age 59 1/2, and assuming that your sole beneficiary isn't your spouse who is more than 10 years your junior, you could expect to take distributions for 27.4 more years, or until you were 97-plus years old. If your spouse is 10 years younger than you, then the life expectancy is based on both your ages. You never have to take money out of your Roth account during your lifetime.

Beneficiary Designation

How long your IRA will last may also depend on who you designate as your beneficiary. If your spouse is your sole beneficiary, and you die with money remaining in your account, your spouse has the option to take over the IRA and make it his own. He can then name his own beneficiary, who could be a grandchild, and that beneficiary could choose to take IRA distributions over her lifetime. If it's a traditional IRA, then the 70 1/2 RMD rule applies to your spouse beneficiary, but if it's a Roth, your spouse could keep it over his lifetime too. So a Roth could last through your lifetime, your spouse's lifetime and then go to a grandchild younger than 1-year-old who could string the benefits over her lifetime, or 82-plus years.

Planning

You may think of your IRA purely as a retirement plan that you'll dig into when the time comes. As your income and family grow, you should start thinking of your IRA in terms of tax and estate planning. Choices like what type of IRA to choose -- traditional or Roth -- and who should be your beneficiary can have tremendous tax consequences over the long term. So you may want to consider sitting down with someone who can work with you on a long-range financial plan.

 

About the Author

Nancy Cross is a certified paralegal who has worked as an employee benefits specialist and counseled employees on retirement preparation, including financial and estate planning. In addition to writing and editing, she runs a small business with her husband and is a certified personal trainer with the Aerobics and Fitness Association of America (AFAA).

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