How to Correctly Name Beneficiaries for Your IRAs

As I help clients get their financial affairs in order, one of the most common mistakes I see is how beneficiaries are named on IRAs. As we kick off the New Year I want to encourage you to set aside just a few moments to look at how you’ve named the beneficiaries of your IRAs.

You see, you could be unintentionally reducing your family’s wealth potential if you do not properly designate the beneficiaries of your IRAs. The ramifications of this mean your IRA assets could pass to the wrong people or entities, so how you execute your beneficiary designations is critically important.

Here are some issues to be aware of regarding your IRA beneficiaries:

Spouse: A surviving spouse can either roll the funds into his or her existing IRA or establish an inherited IRA and take distributions that will be calculated based on his or her life expectancy. It is often (though not always) a good idea to name your spouse as the primary beneficiary of your IRA.

Children: Just like spouses, children can stretch required distributions from an inherited IRA over their own life expectancies. But be careful. Naming minor children as primary or even contingent beneficiaries is almost never a good idea.

Trusts: A trust can be named a beneficiary of an inherited IRA (and this is often the right thing to do), but there are a number of complex issues involved so be sure to consult with an attorney for guidance.

Contingent beneficiaries: A surviving spouse may wish to disclaim interest in an inherited IRA, so the assets can pass to children or grandchildren. Therefore, it is important to name secondary as well as primary beneficiaries for your IRA so assets remain within the control of your family. Naming the right contingent beneficiaries is often as important as naming the right primary beneficiary.

If you’d like to learn more about how to properly protect retirement accounts or other financial assets for loved ones or have other estate planning questions, call our office today to schedule a time for us to sit down and talk. We normally charge $750 for a Family Estate Planning Session, but because this planning is so important, I’ve made space for the next two people who mention this article to have a complete planning session at no charge. Call today and mention this article.

Happy New Year to you and yours,