Your retirement account has a long life, and it doesn’t necessarily end when yours does. If you’ve contributed to a 401(k) or IRA throughout your career, you’ve probably accumulated a substantial nest egg. Then once you turn 59 ½ you can start withdrawing. And at 70 ½ you must start withdrawing. Required Minimum Distributions (RMDs) will force you to draw down your account balance, but might not deplete it. No matter how much money is left in your account, you need to designate a beneficiary. If you did so more than a few years ago, there may be reasons to update your retirement account beneficiaries.
Maybe you designated a beneficiary when you first established your retirement account and haven’t looked at the paperwork since. During that time, you may have gotten married, divorced, had children, or become involved with a charity you would like to leave money to.
Even if you updated your will or set up trust, you need to update your retirement account beneficiary because beneficiary designations trump will and trust directives. For example, you may want to divide your IRA equally among your children, but only have the oldest one actually named as beneficiary because you forgot to make updates when your other children were born. This could result in a court battle.
To prevent a situation like this, you should review your beneficiary designation immediately after events like the birth or death of an intended beneficiary, marriage, and divorce. If you never designated a beneficiary, federal or state law may determine one after you pass away. For qualified plans such as 401(k)s, the automatic designation is the spouse of the account owner. If you are divorced, widowed, or have another beneficiary in mind, you should review your beneficiary designation. If you decide you want to leave your retirement account to a charity, make sure it’s a qualified charity and continues to operate as such.
Naming a beneficiary for your retirement account is important, but it isn’t the only thing to consider when estate planning for your loved ones. There are ways to minimize taxes for your heirs, stretch the amount of time they have to draw down an inherited IRA, and gift money to future heirs during your lifetime. At APO Financial, we can help you create a comprehensive retirement plan that takes your estate and legacy planning needs into account. Click here to schedule a no cost, no obligation financial review with us.