Naming a trust as beneficiary will give you maximum control over your tax-deferred money after you die. That’s because the distributions will be paid not to an individual, but into a trust that contains your written instructions stating who will receive this money and when.

For example, your trust could provide income to your surviving spouse for as long as he or she lives. Then, after your spouse dies, the income could go to someone else. The trust could even provide periodic income to your children or grandchildren, keeping the rest safe from irresponsible spending and/or creditors.

While you are living, the required minimum distributions will still be paid to you over your life expectancy. After you die, the required distributions can be paid to the trust over the life expectancy of the oldest beneficiary of the trust.

The trustee can withdraw more money if needed to follow your instructions, but the rest can stay in the account and continue to grow tax-deferred. You can name anyone as trustee, but many people name a bank or trust company, especially if the trust will exist for a long period of time.

Anytime you name an individual as beneficiary, you lose control. After you die, your beneficiary can do whatever he/she wants with this money, including cashing out the entire account and destroying your carefully made plans for long-term, tax-deferred growth. The money could also be available to the beneficiary’s creditors, spouses and ex-spouse(s). And there is the risk of court interference at incapacity. If any of this concerns you, consider using a trust.

If your spouse will have plenty of assets after you die, if you have reason to believe your spouse will die before you, or if you are not married, you could name your children, grandchildren or other individuals as beneficiary(ies). Because the distributions can be paid over your beneficiary’s life expectancy after you die, the tax-deferred growth can continue even without the spousal rollover.

Your spouse will have full control of this money after you die and is under no obligation to follow your wishes. This may not be what you want, especially if you have children from a previous marriage or feel that your spouse may be too easily influenced by others after you’re gone.

Also, if your spouse becomes incapacitated, the court could take control of this money. It could be lost to your spouse’s creditors. And, finally, naming your spouse as beneficiary can cause your family to pay too much in estate taxes. (More about this later.) If any of this concerns you, keep reading.

If you don’t remarry, you lose the rollover option. This used to be a problem, because distributions after your death would still be based on your and your deceased spouse’s life expectancies. But now you can name a new beneficiary, and after you die the distributions will be based on the new beneficiary’s life expectancy.

If you die first, your surviving spouse can “roll over” your tax-deferred account into his/her own IRA, further delaying income taxes until he/she must start taking required minimum distributions on April 1 after age 70 1/2.

When your spouse does the rollover, he/she must name a new beneficiary, preferably someone much younger, as your children and/or grandchildren would be. After your spouse dies, the beneficiary’s actual life expectancy can be used for the remaining required minimum distributions. The results, shown in the chart below, can be phenomenal.

For example, let’s say your grandson is 20 when he inherits a $100,000 IRA from your spouse. Over the next 63 years (the life expectancy of a 20-year-old), the $100,000 IRA can provide him with over $1.7 million in income!

Under current IRS policy, your spouse can do this rollover and stretch out the IRA even if you had started taking required minimum distributions before you died.

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TOTAL INCOME FROM IRA OVER BENEFICIARY’S LIFETIME*

Age 20, Life Expectancy 63.0 Years
Value of $50,000 IRA When Inherited by Beneficiary = $882,865
Value of $100,000 IRA When Inherited by Beneficiary = $1,765,731
Value of $500,000 IRA When Inherited by Beneficiary = $8,828,658

Age 30, Life Expectancy 53.3 Years
Value of $50,000 IRA When Inherited by Beneficiary = $526,612
Value of $100,000 IRA When Inherited by Beneficiary = $1,053,225
Value of $500,000 IRA When Inherited by Beneficiary = $5,266,128

Age 40, Life Expectancy 43.6 Years
Value of $50,000 IRA When Inherited by Beneficiary = $321,210
Value of $100,000 IRA When Inherited by Beneficiary = $642,421
Value of $500,000 IRA When Inherited by Beneficiary = $3,212,106

Age 50, Life Expectancy 34.2 Years
Value of $50,000 IRA When Inherited by Beneficiary = $201,067
Value of $100,000 IRA When Inherited by Beneficiary = $402,134
Value of $500,000 IRA When Inherited by Beneficiary = $2,010,671

* Assumptions: 7% annual return; only required minimum distributions withdrawn. Income subject to income taxes.

Most married people name their spouse as beneficiary. That’s because 1) the money will be available to provide for the surviving spouse and 2) the spousal rollover option can provide many more years of tax-deferred growth.

Also, if your spouse is more than ten years younger than you are, you can use a different life expectancy chart that makes your required distributions even less. (This lets the tax-deferred growth continue longer on more money.)

You have five basic options: your spouse, if married; your children, grandchildren or other individuals; a trust; a charity; or some combination of the above.

Not any longer. Now, almost everyone uses the same chart to calculate distributions, even if you have no beneficiary. After you die, distributions are based on your beneficiary’s life expectancy (or the rest of your life expectancy if you die without one.) Naming the right beneficiary is still critical to getting the most tax-deferred growth. That’s much easier to do now, because you are no longer locked into the beneficiary you name when you take your first distribution.

Calculating the amount you must withdraw each year (your required minimum distribution) is much easier now than it used to be. Each year, you divide the year-end value of your account by a life expectancy divisor from the Uniform Lifetime Table (provided by the IRS). The result is the minimum you must withdraw for that year. You can always take out more.

For example, the divisor at age 70 is 27.4. If your year-end account balance is $100,000, you divide $100,000 by 27.4, making your first required minimum distribution $3,650. Each year the divisor is smaller, but it never goes to zero. Even at age 115 and older, the divisor is 1.9. “To recalculate or not recalculate” is no longer an issue. Everyone now gets the benefit of recalculating his/her expectancy.