A short video segment in which Craig Wear, CFP® explains tax pitfalls when inheriting large IRAs and stresses planning to avoid heavy tax burdens on beneficiaries. He gives an example where, with two heirs, roughly one-third of an IRA can effectively go to taxes if distributions are not managed, and warns about combined federal and state tax impacts.
Well, you leave a couple million dollars to somebody and they got to take another 200, $250,000 a year, or if they make the mistake of just kicking the can down the road and leaving it there, now they're taking it out and they're paying tax at 30, 40%. And now you add state tax on top of that. It's a big deal. What we find is that it's pretty easy if you just have two heirs. It's pretty easy to imagine where a third of your IRA is going to end up in tax to the government. A third goes to the other two kids.
