Friday, November 16, 2012

Designate Retirement Account Beneficiaries

As executor, I've learn the importance of having beneficiaries recorded for retirement accounts.  My dad listed my mom as the beneficiary for all his retirement accounts.  Although my mom had beneficiaries for all her retirement accounts, she did not add beneficiaries for the 401K retirement accounts she inherited from my dad.  As a result, the retirement account assets were distributed per the custodians procedure, which was to the estate.   So unless an inherited IRA is created in the name of the estate, taxes will be paid on the distribution.  Fortunately, the amount was not large enough to create a higher than normal tax liability.

For my mom's IRAs, we asked her to make the grandchildren her beneficiaries and they have rolled over the accounts into inherited IRA accounts.  The main tax benefit of choosing the grandchildren is that the required minimum distributions (RMDs) are based on their remaining life expectancy, which is about 75 years.  So only about 1/75th of the account needs to be withdrawn this year. (For reference, here is an RMD calculator for inherited IRAs.  Because the amount will be much less than the $950 standard deduction for children with unearned income, no taxes will be owed on the RMDs for 2012.

Based on this experience with my mom's estate, I've checked and confirmed that my spouse and I both have designated beneficiaries for all our retirement accounts.

For more on Reaping the Rewards, check back every Friday  for a new segment.

This is not financial or retirement account advice. Please consult a professional advisor.

Copyright © 2012 Achievement Catalyst, LLC

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