Re-Visit Your IRA Beneficiary Designations From Time to Time

Part one of two

Many working or retired adults have at least one IRA; some have several.  When you opened your account, especially if it was many years ago, maybe you didn’t focus too much on the section that asks you to name a beneficiary.

Actually, many IRA forms simply ask you to name “your beneficiary” and don’t bother to explain that you can name more than one, and that you can name both primary and contingent beneficiaries.

Note that contingent beneficiary action only kicks in if you pass away and the primary beneficiaries also pass away.  However, most people draw from IRA accounts on a monthly basis, not all at once (for tax reasons) so it’s probable that a contingent beneficiary can benefit from funds that are still left over in an IRA.

But as you grow a bit older it’s a good idea to think about what would happen to your IRA holdings if, say, you and your beneficiary should die at the same time.  Or maybe there have been changes in your immediate or extended family structure that call for a review of who you may want to receive your holdings should you pass away.

It’s important to note that if you have a Will or a Trust in place, those documents will not over-ride the beneficiary designation(s) in your IRA document(s) unless you name your estate or trust as your beneficiary.

What may people don’t know (and again those IRA forms don’t always make these options clear) is that you can name more than one primary beneficiary and more than one contingent beneficiary.  You can also spell out percentage disbursements to individuals.

If you want to change beneficiary designations in an IRA it’s easy and there is no cost; simply contact your account administrator then fill out and sign a form.  Be sure to get a confirmation.

It’s important to note that distributions from an IRA will have tax consequences for your beneficiaries, so check with your Estate Planning attorney.  Your Estate Planning attorney can also help you put your IRA in perspective as it relates to your other plans and options.

In part two we’ll look more into primary and contingent beneficiaries.