Take Care With IRA Beneficiary Forms

1040 Tax Form

Even though many people think so, retirement accounts are not included in wills.

A story in Forbes points out that who gets the money invested in a retirement account such as an IRA depends on who is named on the account’s beneficiary form.

Lots of people make mistakes when it comes to retirement accounts.

They may fail to designate a beneficiary, or the form may not be on file with the financial institution that has custody of the account.

Either mistake can cause problems when it comes to distributing the money. For example, the money could go to the person’s estate and be subject to creditors or to someone you don’t want to see get the money.

If you name your estate as the beneficiary, the IRA asset will be subject to probate and cause immediate income tax consequences. Here are some basic IRA rules to live by:

  • Designate a beneficiary.
  • Designate a contingent beneficiary.
  • Don’t designate your estate.
  • Don’t designate your living trust, unless otherwise directed by your attorney.
  • Review the beneficiary forms regularly.
  • Make sure your financial institution has the form and any updated forms.