Updating Beneficiary Designations

You haven’t recently reviewed your retirement plan beneficiary designations

No matter how carefully you plan your estate, your objectives can easily be thwarted by inappropriate beneficiary designations for IRAs, 401(k) plans or other retirement accounts. Here are some of the most common mistakes:

Failing to coordinate beneficiary designations with the rest of your plan. Suppose that you wish to leave your wealth in trust for the benefit of your child. If you’ve designated the child as beneficiary of an IRA or other retirement account, he or she will receive those assets outright.

Not updating beneficiary designations after a divorce. If your former spouse is still a designated beneficiary, he or she may receive a sizable inheritance, even if you’ve written him or her out of your will.

Designating your estate as beneficiary. Under the required minimum distribution (RMD) rules, if you name your estate as beneficiary of an IRA or other qualified retirement account, the entire account balance will have to be distributed (and subject to tax, generally unless a Roth IRA) by Dec. 31 of the fifth year after your death.

Individual beneficiaries, on the other hand, can stretch the distributions over longer periods, maximizing tax deferral. A spouse can roll the funds into his or her own IRA and wait until age 70½ to begin RMDs. With IRAs and many employer plans, nonspousal beneficiaries can roll the funds into inherited IRAs and stretch RMDs over their life expectancies.

Not reading the fine print in employer plans. Not all employer plans allow rollovers to someone other than a spouse. If that’s the case with your plan, consider rolling the funds into your own IRA during your lifetime and designating the appropriate person as beneficiary of the IRA.

Please confirm that you understand the consultation is paid and the fee is $350.