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Should I leave my IRA to my 90-year old mom?

October 12, 2012: 6:30 AM ET

I'm 63 years old and my mom is 90. If I die before her and she inherits my IRA, what percentage of the total IRA assets would she have to take yearly? Would it be better if a much younger member of my family inherits the IRA? – Name withheld

According to Don Richardson, a CPA in Stamford, Conn., the answer depends on how old you are when you die. If you die before you reach 70 ½ years of age, your mother's annual required minimum distribution (RMD) would be based on her life expectancy according to actuarial tables used by the IRS. (Find those tables by going to http://www.irs.gov/publications/p590/ar02.html and scrolling down.) If you die after turning 70 ½, the RMD would be based on the longer of your mother's life expectancy or your life expectancy as stated by the IRS table at the time of your death; in your situation, thus, it would be based on the life expectancy figure for people the same age as you at your time of death.

The initial year's RMD is calculated by dividing the balance of the IRA assets with the number of years in the relevant person's life expectancy. After that first year, each annual RMD is calculated in the same basic way, but with a twist: Instead of using a new life expectancy estimate, you simply subtract one year from the original estimate for each subsequent year.

In your scenario, if your mother inherited your IRA this year, her first annual withdrawal would need to be taken by December 31 of next year. The initial RMD would therefore be the equivalent of the IRA balance divided by 5.2 — her life expectancy at age 91. The next year's RMD would be the remaining IRA balance divided by 4.2, and so on.

Most people try to prolong the length of time assets remain in a retirement account in order to maximize the benefit of tax-deferred compound growth. Given your mother's age, she wouldn't have much time to take advantage of that growth after inheriting your IRA. So whether you die before or after 70 ½, says Richardson, it makes more sense to leave the IRA to a family member younger than you who can stretch out that tax-deferred growth over a much longer period of time.

— Marc Mewshaw

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