A Beneficial New Year’s Resolution

By Whittney Stauffer

When you set up your retirement savings account maybe 3 or 30 years ago, you listed who will be the beneficiaries of your savings. A lot may have changed in your family since then, such as divorce or remarriage. Would you want your ex to inherit the sum of money you saved for retirement? That is why it is important to review the beneficiary forms of your retirement accounts, to ensure your beneficiaries are in accordance with your wishes by the time of your death. How about making this your #1 New Year’s resolution?

SETTING THE BENEFICIARY RECORD STRAIGHT

Funds in a retirement account – such as IRA, 401(k), or 403(b) – pass to beneficiaries designated when you opened the account (unless you changed them since). Transfers to these beneficiaries go into effect at your death and, contrary to popular misconception, will not normally pass under the terms of your will.

The exception is if you simply forget to name a beneficiary or if your beneficiary predeceases you. If that happens, your IRA will be a part of your estate and must go through probate before it will pass to your heirs. This could be costly, time consuming, and your loved ones could get much less than you planned. Even if your beneficiaries are still alive, reviewing who you designated is a good exercise. Family situations change, so it is wise to verify that what you put down on paper, say 5 years ago, matches your wishes today.

DO YOU HAVE A BACK-UP BENEFICIARY?

Typically, married people will choose to name their spouse as the primary beneficiary. But what happens if you both pass away in an accident? Do you have an alternate beneficiary listed should something like this happen? Don’t stop at listing a primary – your back-up or contingent beneficiary can be just as important. Some may opt to have a trust serve as the beneficiary when asset protection is a major objective, or if there are concerns an heir could squander the inheritance. If you selected this option, ensure your trust contains the necessary language to make this work. If in doubt, consult with your attorney.

A big curve ball retirement account owners face in 2020 is the recently signed SECURE Act (read Michael Hopper’s article on page 5). The act eliminates the ability for most non-spouse beneficiaries to stretch out distributions over their lifetimes. Instead, they have to take the payouts over a maximum 10-year period. This change impacts IRAs whose owners die after December 31, 2019, and may affect your beneficiary selection as well as the attractiveness of naming a trust in some cases.

Make it a priority to review your forms; make sure they outline your most recent wishes, and verify that they are properly on file with the custodian. Check this item off your resolutions list first, then move on to that junk drawer or the always awaiting treadmill.

Whittney Stauffer, CFP®
Vice President

(918) 744-0553
WStauffer@TrustOk.com