Are Your IRA Beneficiary Designations Up to Date?

Published on June 5, 2017

Many people forget about who they designated as their IRA beneficiaries until it’s too late. Divorces, deaths and other changes in the family may make a once-intended beneficiary the wrong person to inherit your IRA upon your passing. This is why it is important to check your beneficiary designation forms for IRAs, HSAs, and Coverdell education savings accounts to make sure that the right person is noted on these legal documents. Note that these beneficiary forms generally override anything in a will or a trust, and notify the account custodian as to who inherits the assets.

We encourage our clients to periodically review their beneficiary designation forms for their self-directed retirement plans to make sure the information on the forms is aligned with clients’ intentions regarding who receives account assets. The plan agreements or beneficiary forms are the legal documents that stipulate how assets are paid out and who receives them. An incorrect beneficiary form -or lack of one- can lead to painful disputes after your death. Account holders should do their best to name a beneficiary and review the default provisions of your plan agreement to be very clear on what is stipulated in the event there is no named beneficiary.

You may name a beneficiary of your self-directed IRA: your spouse, descendants (children, grandchildren) or other individuals as well as a trust, charity or a combination of these. IRS Publication 590 has information about this.

We strongly recommend you consult with a tax adviser or estate planning professional regarding your beneficiary selection, since inheriting a retirement plan—self-directed or otherwise—can have tax ramifications for the beneficiary. In addition, special care must be taken by the beneficiary of a self-directed retirement plan to avoid making prohibited transactions within the plan. Our self-directed-IRA experts can explain some of the nuances of this for you.

Outdated or ambiguous beneficiary designations add needless complexity to estate issues; don’t add this stress for your family members or the executor of your estate. Rather, simply keep your IRA beneficiary information up to date. The professionals at Next Generation Trust Services can direct you to the proper forms for this. Be sure to make the form as unambiguous as possible to protect your heirs and ensure that your intentions for asset distribution are followed. Contact us at 1-888-857-8058 to help you make sure your choice of beneficiaries for your accounts are up to date.