Whether you realize it or not, you have a beneficiary designation on your IRAs (i.e. individual retirement accounts.) It would be prudent for you to check the beneficiary designations to ensure that they are in line with your current intent, goals, and estate planning documents.
Stretch out goals
IRAs make great inheritances for children and grandchildren who, with proper planning, can stretch the IRA distributions out over their life expectancy. The tax deferred growth is amazing and provides a strong retirement asset for the beneficiaries. If the IRA is a Roth IRA, not only do the assets grow tax free, they are distributed tax free as well.
Even taking into account that your beneficiaries will take the required minimum distributions over their entire lifetime, the IRA assets will continue to grow until your beneficiary is in his or her eighties.
If after consultation with a qualified, experienced estate planning attorney, you determine that the best beneficiary for your IRA is not your spouse, you must obtain a written spousal waiver indicating that your spouse is aware and okay with you naming someone other than him or her as the beneficiary of your IRA.
Sometimes, trusts, children, or grandchildren may be named as the IRA beneficiary. This would necessitate written spousal waiver. Which beneficiary choice is the best often involves important tax and non-tax considerations. It is best to work with an experienced and qualified estate planning attorney to decide which is the best option for your loved ones.
If you fail to secure the mandated waiver, your spouse will be entitled to your IRA assets at your death.
If you get married after you make your beneficiary designation and want to continue to name a non-spouse, you must obtain the mandated written waiver from your new spouse within one year from the date of your marriage. If you do not, your new spouse will be entitled to your IRA upon your death.
When to examine your IRA beneficiary designations
You should examine your IRA beneficiary designations when you update your estate planning documents every few years. If you experience a significant life event such as a marriage, divorce, new partner, new child, or a significant change in assets, health or family situation, examine your IRA beneficiary designations immediately.
Still have questions about your IRA beneficiary designations?
The rules surrounding IRAs and other retirement accounts with beneficiary designations are complex. For this reason, it is best to work with an experienced and qualified estate planning attorney to get your questions answered and to decide which alternatives are best for you and your loved ones.
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