Planning for retirement is no simple task. In addition to figuring out how much you’ll need to live on and how much you should set aside each year, there are so many retirement plans to choose from, each with its own rules and regulations. Here are a few common retirement plan myths, along with the facts you should know.
· Your choice of IRA beneficiary is “locked in” once you reach age 70 ½. This is not true. Age 70 ½ is the age at which Required Minimum Distributions begin, but as long as you’re alive and mentally competent, you can change your choice of designated beneficiary at any time.
· If you own multiple IRA’s, then after you reach 70 ½, you’re required to take a certain amount of money out of each account. After age 70 ½, you’ll be required to take a minimum IRA distribution each year. The amount is determined by your IRA account balance and by your remaining life expectancy. If you own more than one IRA, though, you’re allowed to figure your Required Minimum Distribution based on the total balance of all your IRA’s, and your Required Minimum Distribution can come out of one account or a combination of accounts.
· If you name your children as IRA beneficiaries, they’ll be required to cash out the account as soon as they inherit it. In reality, your children will only have to take an annual Required Minimum Distribution, and it’s to their benefit not to withdraw any more than the required amount each year. This is called “stretching out” the IRA, and it results in fewer tax bills and more opportunity for the IRA to grow over time. In fact, many people choose to establish an IRA trust to ensure that their beneficiaries only take the Required Minimum Distribution each year.
· You must take a certain amount from your 401(k) each year after you reach age 70 ½, regardless of your employment situation. Assuming you don’t own the business, you’re only required to begin taking Required Minimum Distributions from your 401(k) when you reach age 70 ½ if you’re actually retired. If you remain employed, there’s no distribution requirement.
Retirement planning and estate planning are very closely linked. To make sure that your retirement plan and your estate plan work together to serve the needs of you and your family, you’ll want to consult with a qualified estate planning attorney.