The Importance of Understanding IRA Beneficiary Selection

The Importance of Understanding IRA Beneficiary Selection. Anyone or anything can generally be the beneficiary of your retirement assets such as IRAs, 401(k)s and annuity contracts. It doesn’t have to be a relative and yes, you can name your dog or your alma mater! Choosing the proper beneficiaries is not always as simple as it seems and many people do not realize what the consequences can be.

For example, an ailing client asked if he could name his trust as his IRA beneficiary. Provided the IRA custodial agreement permits him to name entities, this answer is yes.. However, the question becomes: does he really want to do that?

After looking at his retirement plan and understanding his goals, it was not the best choice under the circumstances. The client had significant IRA assets and planned to leave his children and grandchildren a legacy by creating the opportunity for them to stretch IRA distributions over their individual life expectancy. He thought that naming his trust would accomplish his goal.

What the client failed to realize was that his wife and older brothers were also named as trust beneficiaries. The IRS has made it very clear that when a trust is the beneficiary of an IRA, the oldest trust beneficiary’s life expectancy is the measuring life. Thus, his children and very young grandchildren would be stuck with a significantly shorter distribution period. He erroneously thought each trust beneficiary could use their own life expectancy.

If you are unsure or want to be sure how your hard-earned money will flow when you are gone, your retirement distribution specialist can help you by conducting a Custodial Review. This is a complimentary service that costs you nothing but can really pay off for your heirs! Contact Deb today!