IRA Beneficiary Rules to Protect Your Family

by Neal Frankle, CFP ®

There are a few IRA beneficiary rules you need to know that can save your family money and grief. The first and most important rule is that your beneficiary form determines who gets your money when you are gone.

It doesn’t matter if you have a family trust or will. The beneficiary form rules supreme.

The second rule is, don’t forget the first rule.

One of my colleagues told me about a disaster just this morning. It happened because Jim (her client) forgot about rule #1. Jim and Debbi divorced over 10 years ago. Before the divorce, Debbi was Jim’s beneficiary. The divorce decree mandated that Jim hand over 50% of his IRA to Debbi – which he did. But he never changed the beneficiary designation.

My colleague Melinda told her client Jim to update his IRA beneficiary form but he never got around to it. He set up a will and a trust after the divorce and thought he was covered. Can you guess what happened?

Jim dropped dead and Debbi is going to get the rest of the money. This is not what Jim would have wanted, but it’s the way it’s going to be.

And it’s a shame. Jim’s new spouse was counting on that money and now she’s going to be…shall we say…disappointed? This isn’t complicated. If you want to protect your IRA beneficiary, take care of this today.

Even if you haven ‘t divorced recently, you really should check your beneficiary forms every few years and make sure they reflect your wishes. You should do this no matter what – even if nothing in your life changes.

Your IRA beneficiary form is the most important estate planning tool you have. Please don’t ignore it. Of all the IRA restrictions, this is the one you should be most concerned about.

So…tell me, and please be honest…when was the last time you reviewed your IRA beneficiary forms? What have you done to protect your IRA beneficiaries?



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