The Best Way to Leave Assets for Non-Spousal Heirs


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Although very well-intentioned, qualified plans are not the best assets to plan on leaving behind to your non-spousal heirs. The problem stems from the fact that they may be subject to income and estate taxes upon their inheritance. Depending on your gross estate value and your state of residence, your qualified plans could be subject to federal estate tax, state death tax, and federal and state income taxes.

Even if your estate is not subject to estate or death taxes, whenever the non-spousal beneficiary of your qualified plans needs to take money out, which they’ll be required to take mandatory minimum distributions each year, these distributions will be taxed at their ordinary income tax rates. These required minimum distributions could possibly push the inheritor into a higher tax bracket, cause more of their Social Security income to be taxed, cause their Medicare premiums to be higher and cause a whole slew of other not-so-great events to occur.

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