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CNN Today

How to Avoid an Inheritance Tax Bite on Your IRA

Aired March 30, 2000 - 2:42 p.m. ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

LOU WATERS, CNN ANCHOR: The surging stock market has jacked up the IRA accounts of some folks into six- and seven-figure balances. When these accounts get passed along to heirs, the government can take a big chunk in taxes.

CNN's Allan Dodds Frank has some tip on limiting the tax bite.

(BEGIN VIDEOTAPE)

ALLAN DODDS FRANK, CNN CORRESPONDENT (voice-over): By taking steps now to protect your individual retirement account you can help your loved ones keep most of their inheritance. Otherwise the IRS may take a big bite out of these savings before they get passed on especially in the case of traditional IRAs.

ED SLOTT, ED SLOTT IRA ADVISOR: Remember that money hasn`t been taxed yet for Income Tax. So, when they die if proper planning wasn`t done they`ll get hit with a double tax possibly a triple tax. So, you have the federal estate tax, federal income tax and if they`re in a high state that levies those taxes you could have triple taxation.

FRANK: Tax accountants say the key is to keep IRAs growing tax deferred or tax free as long as you can even after your death because of complex rules and regulations accountants recommend hiring an IRA expert to plan your account. One common mistake people make warn advisers is naming the estate as the beneficiary rather than an actual person.

JOHN CURRAN, MUTUAL FUND MAGAZINE: If your IRA goes into your estate it will liquidate upon your death and your taxes will have to be paid. But if you name a beneficiary and the right paper work is done the IRA clock can be reset to that beneficiaries life expectancy and you can get decades more of tax free compounding.

FRANK: Another mistake is not picking the right payment schedule. Consultants advise investors to opt for a fixed term payment schedule, which guarantees payments continue after your death instead of being paid to your beneficiaries in a lump sum.

Also keep a copy of a beneficiary form and let your beneficiaries know where the form is.

Finally, verify that the firm or bank managing your IRA offers your heirs the flexibility to name alternative beneficiaries. That`s YOUR MONEY Allan Dodds Frank, CNN Financial News, New York.

(END VIDEOTAPE)

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com

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