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How does having a retirement account impact estate planning?

On Behalf of | Apr 27, 2018 | Estate Planning |

When it comes to estate planning, you shouldn’t forget to address your retirement plan when getting your affairs in order.

As you embark upon end of life planning, you’ll want to look at your retirement plan and make sure you’ve designated a beneficiary that you’re comfortable with. If the person listed on those documents is not whom you expected or whom you’d want to receive your benefits if you passed away, then you’ll want to remedy that.

If you haven’t appointed one, the proceeds from that account will be turned over by a probate judge to your estate upon your death. If it does, then it may take an extended period of time for your beneficiaries to get their hands on those assets.

In addition to taking some time to eventually make it through the process and into their pockets, beneficiaries may also end up being limited on how much they can withdrawl after it’s passed down though probate.

Often, those who inherit retirement accounts are forced to take a certain amount of taxable distributions each year after its owner dies. This can greatly impact how much money is held in a tax deferred status. The less funds, the slower the account will grow.

If a beneficiary is listed for the retirement account, though, the beneficiary is not relegated to making a certain amount of withdrawals within a single year, but over the course of the remainder of one’s lifetime. In contrast, when a beneficiary isn’t appointed, then the entirety of the funds have to be depleted within five years of the death of the original retirement account’s owner.

Setting up a trust to serve as the beneficiary of the retirement account is a tax-savings option as well.

If you have a retirement account and you want to gain a better understanding the implications associated with willing it over to your beneficiaries, a St. George estate planning attorney can provide guidance in your legal matter.

Source: WTOP, “How retirement accounts factor in to estate planning,” Sara Beth Hensley, April 25, 2018