What You Need to Know About Including Your IRA In Your Estate Plan

Putting money into an Individual Retirement Account (IRA) can be a great way to reduce your taxable earnings while ensuring you have funds set aside for retirement. As an added incentive, smart investments made through your IRA can provide you with profits for years into the future. If you have spent decades working and putting a portion of your income into one, it could end up representing a significant portion of your total assets. As such, it is important to look closely at how it is handled in your estate planning documents. In the event something happens to you, there are several important issues you need to address to ensure your chosen beneficiaries get the maximum value from your IRA.

Naming a Spouse as a Beneficiary for Your IRA 

A May 2018 Kiplinger reports points out some misconceptions about IRAs and the way in which they are inherited by your loved ones. For example, while these funds are generally included in your will, it is vital to ensure you have designated beneficiaries in the plan itself.

IRAs are similar to life insurance policies, meaning that they are generally exempt from New York Probate Court proceedings. While this is an advantage in that it can prevent creditors from claiming rights to these funds, it can create confusion and time consuming delays if you do not have an updated beneficiary form in place. Even if it is likely to be your spouse who will inherit these funds, it is important to take the time and designate them on the appropriate forms now.

Designating Other Beneficiaries For Your IRA

If your IRA funds will be going to beneficiaries other than your spouse, it is all the more important to fill out the designation form. Naming IRA heirs only in your will would still give them rights to inherit, but they would likely be limited to rolling these funds over into their own IRA, 401k, or other retirement account. This could prevent them from stretching out distributions over the course of their own lifetimes.

Depending on the amount in your IRA and its investment potential, this could add up to significant amounts of income over the years. If you have concerns about a beneficiary and their ability to manage these funds wisely, you could also have distributions made through a trust. Market Watch advises that setting up a trust to manage IRA funds is particularly important if they are going to a minor child. This provides reasonable limits up until the age of 18 or beyond, depending on the terms you lay out in the trust document itself.

Request A Consultation With Our Estate Planning Attorneys

Any time you are dealing with accounts that contain large amounts of money, it is important to be vigilant and to update your estate plans regularly. At Cavallo & Cavallo, our New York estate planning documents can help devise an individual strategy that best suits your family’s needs. Call or contact our office online today and request a consultation.

Resources:

kiplinger.com/article/retirement/T021-C000-S004-how-heirs-can-maximize-an-inherited-ira.html

marketwatch.com/story/why-you-should-put-your-ira-in-a-trust-2015-03-26