Upon retiring, you may begin to wonder if you can leave your retirement account to a loved one in your will or in a trust. This blog will answer those questions in further detail, as well as other frequently asked questions surrounding your retirement accounts and the relation to your estate plan.
Retirement Accounts and Your Estate Plan: What You Need to Know
Whether a traditional IRA, a Roth IRA, a 401(k) or 403(b), understanding inheritance rules surrounding retirement accounts is critical. With that said, having a conversation with your heirs can help make clear any confusion regarding the passing on of your retirement account.
Retirement Accounts and Your Will
Retirement accounts are passed on to the designated beneficiaries on the accounts, not passed on via your will. Therefore, if there is a discrepancy between the heirs in your will vs. those named as beneficiaries on your retirement accounts, the beneficiary designation from the retirement accounts takes precedence.
Just as you would with your will, you want to pay attention to your beneficiary designations on your retirement accounts to ensure that the funds from your accounts end up in the right hands. For example, if you name your spouse as your beneficiary and later get divorced but fail to update your beneficiary designation, your ex-spouse will still receive the funds following your passing.
Retirement Accounts and Naming Your Beneficiaries
One of the most crucial aspects to any retirement account is your beneficiaries. As stated above, you want to regularly review your beneficiary designations to ensure that those standing to inherit the funds from your accounts are the people you would like to inherit it. Retirement accounts will let you name primary and contingent beneficiaries.
What Happens if You Don’t Name Beneficiaries on Your Retirement Accounts?
Not naming beneficiaries on your retirement accounts means there is no guarantee the funds will pass on to whom you want to have them. Depending on the specific rules of your plan, there could be a default beneficiary if none are named (typically your spouse). For unmarried individuals, the court will determine to whom your funds will pass to.
Can You Put a Retirement Account in a Trust?
The answer to the above question is no, you cannot put your retirement account into a trust. However, you can name a trust as a beneficiary on your retirement account. Doing so can be particularly helpful in the event that the person you want to inherit the funds is a minor and cannot inherit the account outright.
For some, designating the beneficiaries for retirement accounts can be an easy call, while for others it may prove more difficult. Ultimately, it is a crucial decision that you should make with great care. It is not advisable to risk having the funds from your retirement accounts fall into the wrong hands.
For any questions regarding retirement accounts, wills or any of your other estate planning needs, we are here to help. Contact us today to learn more about how we can work with you.
For more information regarding various estate planning and elder law topics, view our resources page, where you will be able to find previous blog articles, newsletters and our informative webinar series.
