Tax Attorneys at Ainer & Fraker, LLP Discuss the Inheritance and Tax Rules governing the Individual Retirement Account (IRA)
The designated beneficiary listed on your IRA account beneficiary form determines who gets your IRA. This is true even if your will or trust names different beneficiaries. You may have filled out that beneficiary form long ago and no longer remember who you designated as your beneficiary. Perhaps your family circumstances or marital status have changed. Whenever your family circumstances change, you need to review your beneficiary designations. You may have named an ex-spouse as your beneficiary and now may not want him or her to receive your IRA.
If you are recently remarried and want your IRA account to go to your children, your new spouse may have to sign a waiver of rights to your retirement benefits. Otherwise, the IRA might go automatically to your new spouse. This is also generally true for employer plan benefits.
If you have a trust and want the IRA proceeds to go to the trust, then you need to name the trust as the beneficiary. There is no tax advantage to naming a trust as the beneficiary of an IRA. Of course, there may be a non-tax-related reason, such as controlling a beneficiary’s access to the money; thus, naming a trust rather than one or more individuals to inherit the IRA could achieve that goal. However, that is not typically the case. Naming a trust as the beneficiary of an IRA eliminates the ability for multiple beneficiaries to maximize the opportunity to stretch the required minimum distributions (RMDs) over their individual life expectancies.
Worse yet is if your IRA does not have a designated beneficiary. When there is no beneficiary form on file, you are really rolling the dice. Your retirement assets will go to whomever the IRA trustee has named for you in the default language in the documents for the account.
When you fill out the beneficiary designation form, you have the opportunity to also designate one or more contingent beneficiaries who will inherit the IRA if the primary beneficiary has passed away before you do. For example, you could name your spouse as the primary beneficiary and your child and brother as next in line if your spouse pre-deceases you. This is a safety net of sorts in case you don’t get around to changing the primary beneficiary after that person passes away.
Don’t take chances; make sure your IRA beneficiary designations are up to date and correctly specify who you want to get your IRA in the event of your death.
Contact a Tax Attorney at Ainer & Fraker, LLP to discuss the Tax Considerations regarding your IRA.