Passing your retirement assets to the right person

September 2nd 2016

  • Your retirement account's beneficiary selection, not your will or trust, determines what happens to the money.
  • If you haven't already done so, be sure you've filled out or updated your retirement beneficiary selections.

What is a beneficiary designation?

When you die, your IRA and other retirement plan assets are distributed according to your beneficiary selections. If you name someone in your will or trust as a beneficiary of your IRA or plan assets, that does not modify the beneficiary that you have specified in your IRA or plan documentation. Even if you have a Will or a Trust, the custodian of your retirement funds will depend on the beneficiary selection in its files.

Choosing the right beneficiaries for the transfer of your assets is critical. Because spouses have more alternatives than other beneficiaries, many people designate their spouses as the beneficiaries of their retirement funds. If you name someone else as your beneficiary in a retirement plan, your spouse will need to grant their permission. Please be aware that certain states and custodians also demand the approval of the spouse when opening an individual retirement account (IRA).

To avoid both income and estate taxes, you can designate one or more qualifying charities as the beneficiary of your retirement account.

What are my beneficiary’s rules for withdrawal?

Non-spouse beneficiaries of an IRA must normally create a beneficiary or inherited IRA and take withdrawals from it after the account owner's death. When the money is taken out, it is normally taxed as ordinary income.

Except under rare circumstances, beneficiaries must take money out of an inherited account within ten years following the owner's death.

Naming a trust to protect your beneficiaries

The bankruptcy creditors of the recipients of inherited IRA and retirement plan assets may not be protected. Given this, you may want to consider placing your assets in trust rather than distributing them directly to your beneficiaries in order to protect them, even if this means that the trusts will have to withdraw the funds sooner than the individual trust beneficiaries would if they were designated as direct beneficiaries of the retirement account. However, even if your heirs don't end up in a scenario where they're going bankrupt, a trust can provide asset protection in other situations, such as during a divorce. Leaving retirement assets in a trust, on the other hand, has its own set of issues that you should discuss with your attorney.

Inheritance of retirement savings comes with a complicated set of laws that can be difficult to understand, and there is a lot of room for interpretation. The Aldwin Callen team can assist you in ensuring that your current beneficiary designations are consistent with your overall estate planning goals.

We Are Here to Assist You. Aldwin Callen's Senior Wealth Advisors are available to help you
design a financial strategy tailored to your specific needs.

Important Information

Aldwin Callen's wealth management may provide you information about its products and services through this material. The information presented here may not be appropriate for all investors, and there are risks associated with making an investment based on the ideas presented.

This document may contain information regarding Aldwin Callen' brokerage and investment advising services. We encourage clients to speak with their Aldwin Callen representative about the products and services they are considering and to clarify any questions they may have about the distinction between brokerage and investment advisory services, including the obligation to disclose conflicts of interest and act in their best interests.

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