Special tax problems can complicate estate planning for any tax-deferred retirement account, such as an IRA, SEP, 401(k), Keough, or any other pension or retirement account (but not for “annuity” accounts with a life insurance component).

Because no income taxes have been paid on the money in these retirement accounts, the person who receives the account at death will have to pay the income tax as money is withdrawn — and withdrawal cannot be deferred indefinitely.

An estate tax may also be owed on the same account, if the deceased person’s total estate was worth more than $675,000.

A surviving spouse can “roll over” such accounts into another tax-deferred IRA, but no other beneficiary can do this. Thus, children who inherit an IRA or other retirement account will usually need to withdraw the money (either in any manner within 5 years, or in equal installments over their lifetime). Special rules apply if the deceased person was already taking distributions from the account.

Estate planning attorneys often recommend that their clients name their surviving spouse as the primary beneficiary of their retirement accounts, since the spouse can “roll over” the proceeds into another IRA. If tax-deferred accounts will pass to others, you must carefully consider the beneficiaries’ tax situations, since it may be possible to reduce income taxes (and thus increase the amount ultimately passing to the beneficiaries) by allocating tax-deferred accounts to low-income people, and other assets to higher-income beneficiaries. It is usually preferable to name specific individuals as beneficiaries, rather than a trust or your estate, since individuals have more deferred-withdrawal options.

Tax-deferred retirement accounts are ideal for bequests to charity: such gifts are tax-exempt.

Estate planning for tax-deferred accounts can be extremely complex, because these accounts pass according to the beneficiary designation, and are not controlled by a will or “living trust.”