For a lot of people out there, the biggest asset they have may be their IRA or retirement plan. You may have spent 30 or more years building up your IRA, but it only takes 30 seconds for a mistake to blow it up with taxes!
Today I’m going to talk how important a beneficiary form is for your IRA. It’s more important than you might realize.
First, always remember that an IRA beneficiary form trumps all other estate planning documents. This means the IRA passes according to the beneficiary form, not your will or trust. So now you can see why it’s so important to have this form filled out properly and that you can locate the document on short notice.
Let me ask you a question: Can you go home right now and quickly find ALL your beneficiary forms for ALL your IRAs? For most people the answer is NO.
I’ll bet you could find your will, trust, or other estate planning documents. But the IRA beneficiary form? Probably not. People assume things, such as, “the bank will have it.” There’s a good chance they won’t. Think of all the bank mergers in the last 5 or 10 years. When a financial institution merges, the forms may not be carried over to the new firm or may get lost in the shuffle.
5 Star Tip: Keep copies of your own beneficiary forms! The truth is, keeping track of your IRA beneficiary forms is NOT a high priority for these large firms. Remember the old days when you kept copies of everything? You should protect yourself and keep copies of all your beneficiary forms! Here’s a document that takes precedence over your will, your trust, and determines where your largest asset goes. This is also the document that determines if your beneficiary can set-up an inherited IRA, and nobody can find it! Really?!
Why is this so important? Because the IRA passes outside your will and trust. It is paid out to the beneficiaries named on the document. If you have no beneficiary listed then it is paid to your estate and is fully taxed at that time and may go through probate. After it’s fleeced by taxes and probate, then it will go according to your will - if you have one, or by intestate laws of your state. At that point it may not reach your intended beneficiaries.
So dear readers, make sure you have named beneficiaries on your beneficiary forms and don’t stop there, make sure you have both primary and secondary beneficiaries listed, and keep copies! This is so easy to do while you’re alive. Don’t let your heirs be shocked at finding no beneficiary forms for your IRAs. It’s better to avoid the fall than to try and put Humpty Dumpty back together again. Know what I mean? Have a great day.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.