Many estate-planning mistakes involve retirement accounts. If you or a loved one has rolled over an employer sponsored 401(k) plan into an existing IRA, it is imperative that you update the beneficiary designation form that is on file. The failure to do so may result in an unintended beneficiary. Many individuals unintentionally fail to update the intended beneficiary on file in accordance with life situations such as divorce, death, or birth of a family member or another loved one.
IRA accounts may have multiple beneficiaries such as a trust, charity, family member or friend. When selecting a beneficiary for an IRA account, you should have a primary beneficiary as well as an alternate beneficiary. In addition, if you or a loved one is naming a trust as the beneficiary of a retirement account, the trust must be appropriately drafted and meet certain IRS requirements in order to accept qualifying monthly distributions.
Other common mistakes when it comes to retirement accounts is naming a minor or an estate as a beneficiary of an IRA. A trust should be named for the minor’s benefit as a beneficiary, as opposed to explicitly naming her or him as the direct beneficiary of the IRA. Also, naming an estate as the beneficiary will eliminate certain tax benefits to these accounts. Upon the death of the owner of an IRA account, all funds in a Roth IRA must be removed within five years. The same rule applies to a traditional IRA unless the original holder of the IRA was 70½. In that case, the monthly qualifying distribution rate would be based on the age of the deceased.
Ultimately, when completing the beneficiary designation form, it is important to keep your estate planning goals in mind. It is important to discuss your goals with a New Jersey estate planning attorney who can guide you through the process. If you have completed the beneficiary designation form, it is important to have an experienced estate planning attorney review the form to ensure that the retirement accounts are in accordance with the rest of the estate plan, because a custodian’s standard beneficiary form may not cover all the bases.
The experienced New Jersey estate planning attorneys at the Law Offices of Hunziker, Jones, & Sweeney help seniors and their families handle all aspects of estate planning, including the designation of beneficiaries on retirement accounts. Our New Jersey estate planning lawyers are trusted by their clients to handle each legal matter with diligence and compassion. For more information, contact our New Jersey estate planning law firm at (973) 256-0456.