Imagine you’ve been toiling away at your job for the last two decades, diligently setting aside as much as you can for your Individual Retirement Account (IRA). Maybe you don’t have to imagine it; maybe you’ve been doing exactly that for the last three decades. Regardless of your IRA situation, this account needs a special approach when you include it in your estate plan. Don’t just put your spouse’s name on the beneficiary and think you’re done with this account — you may need to revisit your estate planning for your IRA at a later time.
For example, be very careful with the beneficiary designation on your IRA. Common errors involve forgetting to complete the beneficiary designation, failing to update the designation after inheriting an IRA or failing to update the designation with a new name after you divorce your previous beneficiary. These errors could result in your IRA going to an unintended person, or they could result in your IRA going through the delays and expenses of probate.
You also need to be careful if your child is earning money in a high tax bracket. A large IRA could trigger a lot of taxes, both to your estate and to the child, but these tax liabilities can be avoided through the right kind of estate planning.
Do you have an IRA that needs to be planned for in your estate? The proper planning you can safeguard your assets, help avoid probate proceedings and make sure that the right family member, or family members, benefit from the assets held in your IRA.
Source: Central Valley Business Journal, “Estate planning with individual retirement accounts,” Jason Harrel and Wendy Morodomi, Nov. 28, 2017