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Some Do’s and Don’ts for Leaving IRA Assets to Your Loved Ones

If you have substantial assets in an IRA – whether a Roth or a traditional IRA – you’re wise to pay attention to how those assets might pass to your spouse or other heirs in the event of your death. Christine Benz of Morningstar Advisors last week wrote a small cache of common wisdom on the subject in the forms of “do’s and don’ts.”

What should you do with your IRA?

  • Check with your estate planning attorney before naming your beneficiaries. Remember, your beneficiary designation(s) trump whatever might be in your will, so make sure your estate planning documents and your beneficiary designations work together. An estate attorney also can advise you on the most tax-efficient uses of your IRA assets and warn you about ill-conceived designations, such as naming a minor child or your “estate” the beneficiary of an IRA.
  • Consider making a charity the beneficiary of your IRA. Depending upon your situation, this could be a tax-savvy way of supporting your favorite cause.
  • Consider whether you should convert a traditional IRA to a Roth account. Again, depending on your individual situation, this could make your retirement assets work even harder for your heirs.

Morningstar’s top list of Don’ts:

  • Don’t fail to name beneficiaries for your IRA assets. What happens if an IRA has no beneficiary designation at all? It all depends. If that is not a good answer for you, then be sure you name a beneficiary.
  • Don’t neglect updating your beneficiary designations after life-changing events. Major life events, such as marriage, divorce, the birth of a child or the death of a loved one may require changes to your beneficiary designations. Plan to review those designations on a regular schedule.
  • Don’t name a minor child as the beneficiary of your IRA. Minor children cannot be named beneficiaries of life insurance policies, retirement plans, or annuities. If you’d like to leave IRA assets to a minor, check with an estate attorney about setting up a trust or a uniform transfers / gifts to minors (aka UTMA / UGMA) account.

For more information on estate planning strategies, sign up for a free, informative, estate planning and asset protection workshop.