October 25, 2022

As part of your own financial planning strategy, it’s a good idea to think about the beneficiaries who may receive your tax advantaged accounts that fall outside of your estate. This is also important to consider if you are expecting to inherit one of these accounts as rules under the SECURE Act significantly determine what choices you can make regarding these funds.

Beneficiaries usually fall into three different buckets; the spouse of the person who owned the account, non-spouse people, such as children, and entities like a trust or a charity. Each of these beneficiaries has different options available to them. A spouse has the most freedom in that they’re able to consolidate that inherited account into their own tax-advantaged account, take a lump sum payment of the whole account or put the funds into an inherited IRA.

For people other than spouses, depending on the age of the account holder when they pass, an entity may be able to take a distribution over the expected lifetime of the account holder within five years of the account owner’s death or as a lump sum. For a trust, naming the trust as a beneficiary can help avoid many problems, but the regulations governing trusts as beneficiaries of retirement accounts can be extremely complicated. Make sure that you work with an experienced financial professional to address many of these common concerns and to avoid typical problems.

If you’re planning on relying on your own retirement but also want to plan for how it can be passed to someone else if something happens to you, make sure you’ve discussed the possibilities with your financial planner.