Do you have the right ben­e­fi­cia­ries

The Covington News - - BUSINESS -

Do you in­vest in ei­ther a tra­di­tional or Roth IRA? If so, you’re mak­ing a smart move, be­cause an IRA of­fers you a tax­ad­van­taged way to save money for re­tire­ment. And of course, you want to save as much as you can, be­cause you could spend two or even three decades as a re­tiree. But if you don’t use all your IRA funds, what will hap­pen to them? It’s up to you — but your de­ci­sion can have a big im­pact on your fam­ily, so you’ll want to plan care­fully.

The dis­per­sal of your IRA de­pends on the ben­e­fi­ciary or ben­e­fi­cia­ries you’ve named. And when it comes to des­ig­nat­ing ben­e­fi­cia­ries, you have sev­eral choices. Here are some of the most com­mon ones.

• You can des­ig­nate your spouse. If you se­lect your spouse as ben­e­fi­ciary, you are pro­vid­ing him or her with con­sid­er­able flex­i­bil­ity in what to do with the money. That’s be­cause your sur­viv­ing spouse can roll over the IRA as­sets into his or her own IRA. This al­lows your spouse to name new ben­e­fi­cia­ries and post­pone tak­ing re­quired min­i­mum dis­tri­bu­tions un­til he or she reaches age 70-1/2.

• You can des­ig­nate a child, grand­child or non­spouse ben­e­fi­ciary. If you name a child or grand­child as your IRA ben­e­fi­ciary, that per­son can take dis­tri­bu­tions based on his or her own life ex­pectancy. If the ben­e­fi­ciary is a young per­son, the dis­tri­bu­tions can then be “stretched out” over a long pe­riod, which can help en­hance the po­ten­tial taxde­ferred growth of your IRA as­sets.

• You can name a trust as a ben­e­fi­ciary. You don’t have to name a hu­man be­ing as your IRA ben­e­fi­ciary — you can name a trust, which is a le­gal ar­range­ment giv­ing you great con­trol over how, and when, the IRA as­sets will be dis­trib­uted. By des­ig­nat­ing a trust as ben­e­fi­ciary, you can ac­com­plish any of sev­eral goals. For ex­am­ple, if you have re­mar­ried, a trust can pro­vide a life­time in­come stream to your cur­rent spouse, with the re­main­ing as­sets ul­ti­mately pass­ing to your chil­dren from an ear­lier mar­riage. A trust can also let you de­cide when your chil­dren or grand­chil­dren can re­ceive the as­sets in your IRA and how much they can get at any one time. In ad­di­tion, a trust can en­able you to make char­i­ta­ble gifts while gain­ing tax ben­e­fits. (To cre- ate a trust, which can be a com­plex in­stru­ment, you’ll need to con­sult with your le­gal ad­vi­sor.)

• You can name mul­ti­ple ben­e­fi­cia­ries. If you’d like to split your IRA among sev­eral chil­dren, you can name them all as ben­e­fi­cia­ries. Once you die, the life ex­pectancy of the old­est ben­e­fi­ciary gen­er­ally will be used to de­ter­mine the pay­out pe­riod for all the ben­e­fi­cia­ries. How­ever, each ben­e­fi­ciary can choose to cre­ate his or her own IRA, called an “in­her­ited IRA,” as long as all th­ese sep­a­rate ac­counts are es­tab­lished by De­cem­ber 31 of the year fol­low­ing your death. The in­her­ited IRA own­ers can then take dis­tri­bu­tions based on their in­di­vid­ual life ex­pectan­cies.

Your fi­nan­cial and le­gal ad­vi­sors can as­sist you in choos­ing ap­pro­pri­ate IRA ben­e­fi­ciary des­ig­na­tions. Take the time to choose wisely. Af­ter all, you’ve worked hard for many years to build your IRA, so you’ll want to make sure it ends up in the right hands at the right times.

Stu­art Hamil­ton

In­vest­ment Rep­re­sen­ta­tive

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