The Importance of Updating IRA Beneficiaries

Individual Retirement Accounts (IRAs) are essential tools for securing financial stability in retirement. However, one critical aspect that often goes overlooked is the designation and regular updating of beneficiaries. Ensuring that your IRA beneficiaries are up to date is crucial for several reasons.

Ensuring Your Wishes Are Honored

Life changes, such as marriage, divorce, the birth of a child, or the death of a previously named beneficiary, necessitate updates to your IRA beneficiaries. If you fail to update your beneficiary designations after significant life events, your assets might not be distributed according to your current wishes. For instance, if you divorced and remarried but forgot to update your beneficiary designation, your ex-spouse might still inherit your IRA assets.

 Avoiding Probate

One of the main benefits of naming a beneficiary is that the IRA assets bypass the probate process, which can be time-consuming and costly. By keeping your beneficiary designations current, you ensure a swift transfer of assets directly to your loved ones without the delays associated with probate.

Tax Implications

Beneficiary designations have significant tax implications. Different beneficiaries (spouse, non-spouse, trust, or estate) have varied options and requirements for distributing the inherited IRA, impacting the tax treatment of the distributions. For example, a spouse beneficiary can roll over the IRA into their own IRA and delay distributions until they reach age 73, whereas non-spouse beneficiaries must generally follow the 10-year rule for distribution. As of January 1^st, 2020, non-spouse beneficiaries must distribute the entire Inherited IRA balance within 10 years of the IRA owner’s date of death. Regularly updating your beneficiaries helps manage these tax considerations effectively.

Clarity and Avoiding Conflicts

Outdated or vague beneficiary designations can lead to disputes among potential heirs. Clear, up-to-date designations minimize the risk of misunderstandings and legal battles, ensuring a smoother transfer of assets.

How to Update Your Beneficiaries

• Review Current Designations: Regularly review your current beneficiary designations, especially after major life events.
• Complete the Beneficiary Designation Form: Obtain and fill out a beneficiary designation form from the Credit Union. This form allows you to add, remove, or change primary and contingent beneficiaries.
• Submit the Form: Return the completed form to the Credit Union. You can request confirmation that the updates have been processed if you wish.
• Consult with a Financial Advisor: You can always discuss your beneficiary designations with a financial advisor to understand the implications and optimize your estate planning strategy. They will be able to provide you with advice on your overall financial situation.

By keeping your IRA beneficiary designations current, you ensure that your retirement assets are distributed according to your wishes, minimize tax burdens, avoid probate, and reduce the potential for family conflicts. Regular updates are a small effort with significant long-term benefits for you and your heirs.

For further information, please call 800-821-5104.

• Al Kauffman, Certified IRA Professional, at ext. 6840
• Victoria Fernandes, Certified IRA Specialist, at ext. 6887