You can list a minor as your individual retirement account (IRA) beneficiary, but minors can't inherit the account directly. To designate a minor, you'll need to appoint a custodian to manage the IRA on their behalf unti♔l they reach the age of majority. We'll walk you through some considerations before explaining the p💯rocess of naming a custodian and designating a minor.

Key Considerations꧑ When Designating a Minor ꧃as an IRA Beneficiary

Before you head off to find a custodian, be aware of significant changes to the rules regarding inherited IRAs. In 2019, the 澳洲幸运5官方开奖结果体彩网:SECURE Act was passed, requiring the balance of an IRA to be distributed within 10 years of the original account owner's death.

However, if the beneficiary is a minor, they're considered to be an 澳洲幸运5官方开奖结果体彩网:eligible des♓ignated beneficiary ♕(EDB). This gives them more flexibility when it comes to withdrawing funds. Specifically, the SECURE Act stipulates that minors can use their life expectancy to calculate an annual 澳洲幸运5官方开奖结果体彩网:required 💎minimum distribution (RMD). Then, once th🌱e miꦿnor reaches the age of majority, the 10-year rule will apply.

You also should consider how the inherited IRA will be taxed, which depends on the type of IRA you have. With a 澳洲幸运5官方开奖结果体彩网:traditional IRA, withdrawals (once the beneficiary reaches the age of majority) will be taxed at the beneficiary's current income bracket. On the other hand, if you pass on a Roth IRA, you've already paid taxes on the funds, so your beneficiary won't be required to pay taxes on the withdrawals.

Requirements for Minor Child Beneficiaries

In order to successfully name a minor as your IRA beneficiary, you🌞 have to follow a f⛦ew important rules.

Naming a Custodian

The IRS does not allow you to simply name a minor as your IRA beneficiary. Instead, you're required to name a custodian who has control of the IRA and can manage it after your death and before the minor you designated comes of age.

If you do not designate a custodian for the account,🧸 the court will appoint one for the minor you listed.

What Is the 10-Year Rule?

If you have a traditional IRA, you're required to make minimum withdrawals once you reach retirement. In the past, beneficiaries could stretch these required minimum withdrawals over their life expectancy, but the SECURE Act established the 10-year rule. Instead of stretching out IRA withdrawals, the beneficiary must have withdrawn all of the funds by the end of the 10th calendar year after the IRA owner's death.

This means there are no required minimum withdrawals, but all of the funds must be out of the account after 10 years are up. However, this rule does not apply to children of the account owners who are still minors. They have the opportunity to calculate an annual required minimum distribution (RMD). Once they turn 21 years old, then the 10-yeꦉar rule wi𒁏ll apply.

Age of Majority

The age of majority is when the minor beneficiary comes of age and is legally allowed to begin managing and withdrawing from the IRA they inherited. Throughout most of the United States, the age of majority is 18 years old (the exception being Nebraska and Alabama with age 19 and Mississippi with age 21). However, the SECURE Act established age 21 as the age of majority for designated beneficiaries.

That said, if the minor is the owner's child, they can begin withdrawing from an inherited IRA by calculating their life expectancy. Once they reach the age of majority, the 10-year rule about withdrawals applies.

What Accounts Can Be Used to Inherit an IRA?

You have options when it comes to choosing an account to leave to a beneficiary.

UGMA

If you'd like to establish a custodial account for the minor, you might look into the 澳洲幸运5官方开奖结果体彩网:Uniform Gifts to Minors Act (UGMA). This legisla⛄tion pওrovides a way to establish an inheritance without going through the court process of setting up a trust.

A UGMA allows you to name a custodian and gift funds tax-free (up to a specific amount). Be aware that this move is permanent. You'll no longer have access to the funds when you set up the custodial account. The minor gets full control of the account and funds when they come of age. Unlike some accounts, like a 529, there are no requirements about how the minor must use the funds.

UTMA

You can also set up a custodial account under the 澳洲幸运5官🅷方开奖结果体彩网:Uniform Transfers to Minors Act (UTMA). It works similarly to UGMA ac𝕴counts in that you must name a custodian who manages the account until the minor comes of age, but a UTMA account can include other types of assets, including property and other assets such as art, patents, and royalties.

Qualified Tuition Program

A Qualified Tuition Program (QTP) is a program that allows people to save for 澳洲幸运5官方开奖结果体彩网:q🐲ualified higher education expenses. You place funds in an account, usually a 529 plan, and the money grows tax-free until the account holder withdraws funds to use for school.

While you can't directly roll money from your IRA into a 529 plan, you can designate the minor as your IRA beneficiary and choose a custodian. The custodian can move the funds to the 529 plan, where they'll stay until the minor legally comes of age and plans to pursue higher education.

Trusts

Although you can't establish a trust while you're alive, you can name a minor as the 澳洲幸运5官方开奖结果体彩网:beneficiary for the IRA and name a guardian as the trustee of the count. You can give specific instructions about how you'd like the IRA funds to be distributed to the minor after your death. A trust allows you to provide specific instructions on how you want the guardian to handle the IRA distributions for the minor.

The Bottom Line

You can't directly give your IRA to a minor when you die. In most cases, you can designate the minor as a beneficiary, but you will need to name a custodian for the account. How you choose to distribute the funds to the minor depends on how much flexibility you'd like them to have with the money. To help you decide the best course of action, it can help to work with a financial advisor who can also assist you with estate planning.