On January 5, 2014

People in Colorado sometimes do not realize that a retirement account is not covered in a will. These accounts have their own designated beneficiaries that are set up when the account is opened. Holders can later change the beneficiary if they wish. Experts suggest that people review any accounts they have and ensure that beneficiaries are current. In some cases, a divorce or death might change who the account holder wants listed.

When reviewing estate planning basics, people should also know that they can name any beneficiary they like if they have an IRA. However, for work-related retirement accounts, such as a 401(k), they must name their spouse, or obtain spousal approval to name another beneficiary. They should not designate their estate as a beneficiary because this could have serious tax implications.

Each account should have a separate beneficiary listed. In addition, when someone inherits money from an IRA, they will need to begin withdrawing funds regularly. They will have a stretch-out time frame that allows them to defer the taxes on the income they receive. For tax purposes, the best beneficiary, after the person’s spouse, is a young person because they have the choice of taking out the lowest amount of money. When adult children are the designated beneficiaries, the account holder might want to list them as ‘per stiripes.” If one of them dies, this allows payments to go to their children instead of dividing the monies between the remaining siblings. If children are minors, the money might best be placed in trust.

The laws can change on a yearly basis and affect estate planning. A probate lawyer might be able to help clients who need to change beneficiary designations or set up a will or estate plan.

Source: Forbes, “How To Leave Your IRA To Those You Love“, Deborah L. Jacobs, January 03, 2014

Categories: Estate Planning

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