Individual Retirement Accounts (IRAs) and other types of accounts like 401(k), 403(b), and 457 accounts have beneficiary designations associated with them. Many people believe that their will can dictate how their IRA is distributed. However, IRAs and other types of accounts like 401(k), 403(b), and 457 accounts come with beneficiary designations.
Article Summary
In this article, we will explore how to choose a beneficiary for your IRA account and how these beneficiaries can benefit from these plans.
Completing Beneficiary Designation Forms
When opening these accounts, you must fill out forms used to specify how the funds in the account will be handled after your passing. The names you put on the forms take precedence over what you have in your will or trust (if you have one).
Designating a Spouse as Beneficiary of Your IRA
A spouse is the only person who can inherit your IRA and treat it as their own. Spouses have several options when they inherit an IRA. They can consolidate it into their own IRA or leave it as an inherited IRA. If they keep it as an inherited IRA, they can withdraw funds from it as needed.
Designating a Trust as Beneficiary of Your IRA
Different forms of trust are often designated as beneficiaries of an IRA. This is done to protect the assets. The surviving spouse can use it as needed, but they will not be able to change your other beneficiaries. The goal here is to ensure that the assets go to the people you wish them to go to, and that no one can change that.
Designating Children as Beneficiaries of Your IRA
If you designate minor children or grandchildren as direct beneficiaries of your IRA, you must name someone in your will to manage the assets on their behalf until they reach the legal age of majority. The age at which they can receive it varies from state to state.
If you have a child with special needs or an adult child whom you do not believe should receive the assets directly, you may want to set up a special needs trust for them.
Ultimately, it is important to make a thoughtful decision about the beneficiary of your IRA. You should consult with an attorney who specializes in trust law to discuss the options available to you and ensure your assets are protected for the people you want them to go to.
Sources:
– Hoopes, Adams & Scharber, PLC. “Beneficiary Designations Supersede Wills and Trusts.”
– IRS. “Retirement Topics – Beneficiary.”
Source: https://www.thebalancemoney.com/who-should-i-name-as-my-ira-beneficiary-2388701
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