Estate Planning: Naming Retirement Account Beneficiaries

Part of the estate planning process is determining who to designate as beneficiaries of your retirement accounts. Who you choose as beneficiaries matters because it can affect how long they will need to take money out of the retirement account and how much tax they will be required to pay.

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It is also important to keep your beneficiaries up to date. Reviewing and updating your beneficiary designations regularly, especially after significant life events such as marriage, divorce, or the birth of a child, will help make the distribution process easier.

The SECURE Act of 2019 changed the rules for inheriting retirement accounts like IRAs and 401(k)s. Before the Act, it was not unheard of to use trusts as beneficiaries to help manage wealth and control how that wealth was distributed.

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The Act mandates most non-spouse beneficiaries, including see-through trusts, to deplete inherited IRAs within 10 years, effectively ending the longstanding “stretch” distribution strategy. Considering this mandate, it may no longer be prudent to manage your retirement beneficiaries with a trust.

If you are philanthropically minded, consider designating a charity as your beneficiary. This is advantageous to the charity, as they are exempt from paying taxes on the inheritance. Leaving your retirement to a charity (or charities) is also a good way to use your legacy to support charities with causes you believe in.

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Some also convert their IRAs to Roth IRAs while they are still living. Doing so allows them to pay the tax now and alleviate a tax burden on their beneficiaries in the future.

It can be difficult to decide the best path forward when estate planning. SVA can help you wade through the various options to make the right decision for you. Contact us today to see how we can help.