Take Time to Decide Who Will Be Your IRA Beneficiary

The only way you can ensure that your IRA funds are passed along to whom you want in a tax- advantaged manner is to make sure that you put your intentions in writing with your IRA custodian. If you named an IRA beneficiary when you opened the account, you should review this information periodically, but especially when your personal circumstances change. Following are some pros and cons of various beneficiary designations.

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Spouse as beneficiary


Your spouse can make a tax-free rollover of your IRA into an IRA in his or her own name. Distributions are taxed at your spouse's rate and any required minimum distributions are calculated based on the spouse's age.


Your tax-free federal estate tax exclusion amount can't be used. If you have substantial assets, you should speak to an estate tax professional who can offer suggestions on how to reduce or even eliminate the tax liability.

Other than spouse


If you leave your IRA to your children or grandchildren, your IRA can provide your heirs with a lifelong stream of income. The inherited IRA could continue tax-deferred growth for many additional years, if the transfer of assets is handled properly.


Non-spouse beneficiaries are not allowed to roll inherited IRAs into their own IRA, and if the IRA is not passed along correctly, taxes might be due immediately. While your non-spouse beneficiaries have the opportunity to defer income taxes on your IRA for many years, any estate taxes must be paid in cash no later than nine months after your death. Children can't inherit an IRA until the age of majority.

A trust as a beneficiary


Having a trust as a beneficiary ensures that the assets will be professionally managed according to your wishes. A trust might provide you and your heirs with asset protection from creditors.


In most cases, this will entail the expense of professional asset management. Also, your beneficiaries might be locked into the terms of the trust.

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Leaving IRA assets to a charitable beneficiary might be more tax-efficient than leaving the assets to a person, because these assets are not subject to estate taxes.


Assets left to a charity will be totally removed from your family. Selecting the right beneficiary for your IRA can be complicated. You should discuss this and other estate matters with your tax professional to be sure your decisions are appropriate for your situation.

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