Beneficiary Designations

Must I name a beneficiary for my IRA?

You are not required by law to name beneficiaries for your IRA. But if you do not name beneficiaries for your IRA, you risk having your IRA assets paid to unintended recipients. In most cases, and depending on the IRA plan agreement, without a named beneficiary, your IRA assets will pass to your estate upon your death and may need to go through probate. You should refer to the terms of your IRA plan agreement to verify how your IRA assets will be distributed upon your death.

May I name more than one beneficiary for my IRA?

Yes. You may name multiple beneficiaries for your IRA. Under many beneficiary designation forms, if you name multiple primary beneficiaries on your IRA, each primary beneficiary who is alive at the time of your death will receive a portion of your IRA. If a beneficiary predeceases you, the portion that you assigned to that beneficiary will be split among your remaining primary beneficiaries—the assigned portion will not pass to the deceased beneficiary’s heirs.

Can I name another beneficiary as back-up in case my designated beneficiary dies?

Although the specific terms governing contingent beneficiaries designations can vary, many financial organizations allow the naming of “contingent beneficiaries.” A contingent beneficiary generally is a beneficiary who will receive your IRA assets upon your death only if all of your primary beneficiaries died before you. Naming one or more contingent beneficiary for your IRA may be a good “back-up plan” in the event you forget to update your beneficiary designation upon the death of your primary beneficiary. Before naming contingent beneficiaries, however, be sure to read the terms of the beneficiary designation form carefully so you understand the circumstances under which the contingent beneficiary will be eligible to receive your IRA assets.

May I name a charitable organization as my IRA beneficiary?

Yes. Under most IRA plans, you are permitted to name any individual or entity you desire as the beneficiary of your IRA.

Can my overall estate planning strategy be significantly affected by my IRA beneficiary designation(s)?

Yes. Your selection of whom you will name as your primary and contingent IRA beneficiaries can significantly affect your overall estate planning strategy. A comprehensive estate planning strategy will take into account your IRA assets and their unique impact on your overall estate.

Are there potential drawbacks to naming my estate as the beneficiary of my IRA?

Yes. Even if the beneficiaries of your estate are the same as the beneficiaries you would name for your IRA, there is a difference in how and when they can access the assets, and potentially on the taxes they will pay. While it is permissible to name your estate as the beneficiary of your IRA, doing so generally may subject your IRA assets to probate, a process that could significantly delay your beneficiaries’ access to your assets. Also, if an estate is the beneficiary of an IRA, the assets may be required to be distributed more quickly than if the estate’s beneficiaries were named directly under the IRA. This is because an estate does not have a life expectancy under which single life expectancy payments may be calculated, potentially resulting in less time to benefit from tax-deferred or potential tax-free gains.

FAQs are not intended to provide tax advice. Contact a tax professional.

Is spousal consent required for a beneficiary designation?

Some states have adopted community property or marital property laws that will give ownership of some of your IRA assets to your living spouse if he has not provided written consent that waives inheritance of the IRA assets. If you live in a state that has such laws or if your IRA is maintained in such a state, you should familiarize yourself with the spousal consent requirements before naming someone other than your spouse as the primary beneficiary of your IRA. States that have community property laws are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Alaska (upon election). Wisconsin also has laws based on key community property principles.

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