Understanding How IRA Assets Transfer at Death

IRA ownership passes to either through a beneficiary designation or pursuant to default provisions listed in IRA documents if there is no beneficiary designation. This means that provisions inside your will do not govern the distribution of assets inside your IRA.

If you do not complete your beneficiary designation form to allow another person to inherit the assets inside their estate, the document from that account management company might state that your spouse or your children will inherit your estate. You have the ability to name your spouse as beneficiary of your IRA and this is the most common beneficiary designation elected.

Your spouse has the maximum flexibility under income tax rules when it comes to inheriting the IRA. One of the most popular options is to roll over that IRA and then have the spouse name their own beneficiaries.

You could certainly name your trust as the IRA but keep in mind that unless the trust satisfies particular income tax rules, the rate of distribution of the IRA and the rate at which the proceeds are subject to income tax can be higher than if you named individuals directly.

Along with your other assets, there’s a good chance that your IRA might have substantial funds inside it when you pass away. Keep the beneficiary designation up to date and remember to talk about this as part of your broader strategy with an attorney so that you have clarify on all major issues.

This is just one of the reasons why you’ll want to discuss IRA distributions as part of your overall estate plan with the help of a lawyer.

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