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Develop a Beneficiary Strategy
Your IRA assets can last beyond your lifetime offering financial
security for your family, loved ones and favored charitable
organizations. But, in order to make sure you provide for the right
people or groups with the money you worked so hard to accumulate, you’ll
have to select your beneficiaries carefully. There are also many complex
tax consequences to beneficiary planning. Work with your financial or
tax advisor closely to choose the beneficiary strategy that best meets
your goals and creates a lasting legacy from your IRA assets.
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| Spouse |
Non-spouse:
children, relatives
grandchildren, friends |
Your Estate
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Other: nonprofit,
charities, schools,
hospitals, museums |
| Key Benefit |
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Spouse has most options including taking ownership of IRA and
transferring to his/her name. |
If beneficiary has long life expectancy, IRA RMDs can be
continued for longer periods of time, allowing tax-deferred
growth to last longer.
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May fulfill overall estate planning goals. |
May fulfill personal philanthropic or charitable goals. |
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Future Considerations |
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If estate planning is your primary goal it might make more sense
to name your adult children, grandchildren or a trust for
grandchildren. |
Naming your minor children may seem like a good idea, but if you
die while the beneficiaries are still minors, it may create
several legal complications. |
Upon death, the IRA becomes an asset of the estate and must go
through costly and time-consuming probate process. May force
entire account balance to be distributed by the end of the 5th
year after your death, generating negative tax implications for
heirs.
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If you are planning to name a charity as one of multiple
beneficiaries, along with family members, it may be better to
create a separate IRA earmarked for the charity so as not to
limit payout options. |
1Before naming a beneficiary, work with your financial advisor and consult with your tax advisor and estate planning advisor
to carefully review all the options to determine
which strategy may be best suited for your circumstances. It is also
important to confirm with your retirement plan custodian and/or trustee
that you have provided an acceptable form of beneficiary designations.
Understanding Beneficiary Designations
There are three beneficiary options that you may choose to designate: primary,
contingent and subsequent. The primary beneficiary is named by the original IRA
owner and receives the assets after the owner's death. The contingent, or secondary
beneficiary, receives the assets in the event that the primary beneficiary dies or
properly disclaims the IRA. The subsequent beneficiary—named by the original IRA
owner or by the beneficiary who inherits the IRA originally—inherits the IRA upon
the death of the original beneficiary.
*Only receives assets if primary beneficiary dies prior to IRA owner or
disclaims the inheritance.
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Beneficiaries1
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