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Senior Finances… When a Significant Life Event Occurs, It’s Time to Review Your IRA Beneficiary

scott-lovellIssue 43.10

Many investors commit a common estate-planning mistake with their IRA assets. Unfortunately, the mistake sometimes becomes apparent only after the account owner dies— when it comes time to transfer the IRA to the heirs. For the intended beneficiaries, these mistakes can lead to extended headaches and heartaches. They can also result in a significant tax bill, which ultimately could reduce the portion of the IRA that heirs will receive.

There is a simple way to prevent the mistake – update your beneficiary designations after significant life events, and add contingent beneficiaries if you haven’t done so already. This too, is a significant part of the estate planning process.

Many people name beneficiaries at the time they opened an IRA, but they never bother to review or update these designations later in life. Because there are several life events that could require a change in beneficiary designations — divorce, re-marriage, the death of a spouse, and the arrival of children or grandchildren – it is important to review and update your beneficiary designations whenever a significant event occurs in your life.

For example, what happens to your IRA should your beneficiary go before you? If you have not changed your primary beneficiary or have not named contingent beneficiaries, your IRA assets could wind up in your estate when you die. Then your heirs could ultimately receive a smaller portion of the account value, due to income taxes, final expenses, and creditor claims.

If your primary beneficiary dies before you, updating your primary beneficiary and naming contingent beneficiaries will help you to transfer your IRA assets efficiently and avoid probate. Furthermore, your heirs could have the opportunity to stretch out their IRA distribution over their lifetimes. However, without valid beneficiary designations, they may have to take mandatory, larger distributions over a shorter period of time after your estate is settled.

Scott S. Lovell is the founder of Lovell Hathaway, Your Retirement SpecialistSM , and is a registered representative offering securities and advisory services through Geneos Wealth Management, Inc.  Member FINRA and SIPC.  For additional information, Scott can be reached at (435) 656-2518.

 

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