Advantages of a Split IRA

You know that your Individual Retirement Account (IRA) is vital to your future financial security, but you may be confused as to why splitting your IRA can be advantageous. Although having only one IRA account is easier to manage in terms of administrative requirements, the current distribution rules are actually set up to benefit those with separate IRAs. This is especially true for those with multiple beneficiaries. Here are three reasons why you may want to consider splitting your IRA account.

Splitting your IRA

Reason #1:

Splitting your IRA will provide better distribution to multiple beneficiaries. This is because the current rule states that the life expectancy of the eldest beneficiary becomes the distribution basis. This is fine if you have only one beneficiary, but if you currently have, or are planning to add multiple beneficiaries, a split IRA can help guarantee that every beneficiary will be able to base distribution on their own individual life expectancies.

Reason #2:

A Split IRA provides more control over disclaiming options. Let’s say that you have two children, and both of them are beneficiaries. With a split IRA, your children will have the option of disclaiming the IRA and allowing the benefits to be passed on to their children, provided that they have been named as the contingent beneficiaries. Disclaiming is an important estate planning strategy, since it allows you to have more control over your finances and allows more flexibility for change.

Reason #3:

Splitting your IRA benefits your spouse. If your spouse is your main beneficiary, a split IRA allows you to set up different IRA accounts, which means that your spouse will be able to treat your IRA as their own, with the option of rolling over your IRA into theirs. Moreover, this option will allow your spouse to defer payments until age 70½.

Deciding to split your IRA is a step that will impact your (and your family/beneficiary’s) financial future. Be sure to consult with your personal financial planner to make sure that this option is right for you.