The #1 Reason Your Estate Should Not Be Your IRA’s Main Beneficiary

The #1 Reason Your Estate Should Not Be Your IRA's Main Beneficiary

( – Discussion over where a person wants their assets to go after they die might feel morbid, but it’s a necessity. A common mistake many people make is naming their estate as the beneficiary of their individual retirement account (IRA). Here’s the number one reason why you shouldn’t: doing so could cost your estate thousands of dollars. This is why.

Individuals named as IRA beneficiaries generally have the balance of their lifespan to withdraw from the account, allowing them to minimize taxes and fees. Executors, on the other hand, must withdraw the entire IRA account balance owed to the estate within five years. Withdrawing the funds faster results in higher tax rates, potentially larger fund fees, and might also increase the amount of legal fees, probate costs, and other expenses.

There are non-tax considerations as well. Naming specific individuals as beneficiaries better protects against both legal challenges to your will and against creditors trying to collect on debts (real or fabricated). Simplifying your estate management might also reduce probate costs, providing your loved ones with more financial choices.

Some people worry about causing friction by naming one or more beneficiaries on their IRA, but the decision may ultimately ensure your estate is able to avoid long-term complications, save money, and sidestep legal challenges. Who are your beneficiaries? Is it your estate?

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