How to Pass Retirement Accounts to Beneficiaries

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    How to Pass Retirement Accounts to Beneficiaries

    How to Pass Retirement Accounts to Beneficiaries

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    If you want to pass your retirement accounts without probate, you’ll need to designate beneficiaries properly.

    Probate is often costly, complicated and stressful. It’s almost always in the best interests of surviving family members to ensure retirement accounts avoid probate.

    However, retirement assets are usually subject to income and estate taxes. For that reason, it’s essential that you properly plan and utilize any possible deduction for federal estate taxes paid on these assets and understand minimum distribution (RMD) rules. Estate planning should always be assisted by an estate planning attorney. You can contact our Florida estate planning attorneys today for a free consultation.

    Designate Beneficiaries

    The number one mistake in retirement account inheritance is failing to name a beneficiary.

    Retirement accounts such as IRAs and 401(k)s can be designated with named beneficiaries. This usually occurs during the paperwork stage of setting up the retirement account. It’s as simple as listing the beneficiaries’ names in the correct box.

    Most retirement accounts will allow you to select both a primary and an alternate backup beneficiary. For example, many people will name their spouse as their primary beneficiary and their child as their alternate beneficiary.

    Doing this can help your retirement account avoid probate. The executor of the estate will not be in charge. Instead, the beneficiary can claim the money directly from the company holding the account.

    Why Avoid Probate

    If you don’t name a beneficiary, then the funds will likely need to go through probate for the retirement account to pass to your beneficiaries. During this, the retirement account funds will pass under the terms of your will. If there is no will, then Florida’s State Intestate Succession Laws will apply.

    Read our guide on Florida Intestate Succession Laws.

    Probate is the process where a will is validated, debts are paid and beneficiaries are identified. Assets and funds are not distributed until all of this is complete. It can be extremely quick but is often painfully slow. It’s generally advised that probate is avoided where possible.

    Who to Designate as Beneficiaries

    Most people name their spouses as their beneficiaries for their retirement accounts. Surviving spouses can roll over retirement plans into their own retirement plans. This can allow them to defer withdrawals until they turn 72 years old.

    Non-spouse beneficiaries must withdraw all funds in the account within 10 years from the date of the original account holder’s death.

    However, some people may name other people as beneficiaries because:

    • Their spouse is incapacitated or not trusted to manage the retirement account.
    • To avoid adding to their taxable estate.
    • They would rather their investments benefit the family of a previous marriage.
    • They would rather the money go to their children, who need the money more.

    Consider Using a Trust

    In some scenarios, using a trust can help overcome problems, such as:

    • Providing for management when there is an incapacitated spouse
    • Permitting assets to benefit a surviving spouse
    • For estate tax planning benefits.

    Trusts are sometimes used as the contingent beneficiary, to ensure children have the inheritance managed on their behalf if both parents die at the same time.

    However, most trusts will not accept retirement accounts. It is advised that you speak to an estate planning attorney to see what is best for you and your family if you are considering using a trust.

    Protect Copies of Your Beneficiary Designation Forms

    Don’t rely on your retirement account administrator or company to safely store records of your beneficiary designations. Keep copies of all your forms and provide another to your estate planning attorney.

    Spouses Can Treat the Retirement Account as Their Own

    Surviving spouses can designate themselves as the account owner of the retirement account. The surviving spouse can then make contributions and name new beneficiaries. They can also make withdrawals, with a 10% federal income tax penalty if the spouse is under the age of 59.5 years old. At the age of 70.5, minimum distributions begin.

    All surviving spouses considering this route should consult a custodian or estate planning attorney.

    Spouses Can Continue as the Beneficiary

    Surviving spouses can also continue as beneficiaries, which may be beneficial if the deceased person was younger than 70.5 years old and the surviving spouse is younger than 59.5 years old.

    In these scenarios, required distributions are delayed until the point when the deceased individual would have to make them. A surviving spouse can withdraw funds without facing a 10% early withdrawal penalty. They can also have the account rolled over once they turn 59.5 years old.

    Retirement Account Inheritance: Rules to Be Aware Of

    Although retirement accounts can pass to beneficiaries immediately, they may have to pay income taxes during that year (depending on the type of retirement account).

    There are ways to reduce the tax impact, however. For example, a beneficiary may be able to withdraw the money over time rather than all at once.

    It is highly advised that you consult an estate planning attorney to minimize taxes and ensure you follow federal tax laws.

    • Rules vary with each type of retirement account, such as traditional IRA, 401(k) and Roth IRA.
    • Surviving spouses have the right to claim the money in retirement accounts, even if there is a differently named beneficiary.
    • If there was more than one named beneficiary, specific rules may apply.

    IRA Inheritance

    Spouses of an IRA can choose to take the account and manage it as if it was their own – including the calculation of required minimum distributions (RMDs).

    Non-spousal beneficiaries must take distributions from the account within 10 years of the original account holder’s death. They will owe taxes on each distribution at their current income tax rate, if the account is a traditional IRA.

    IRA account holders who want non-spousal beneficiaries to receive their accounts should work with an estate planning attorney or custodian that understands the complex rules.


    Since 2007, non-spousal beneficiaries have been allowed to roll their inherited 401(k) balances directly to an inherited IRA account.

    Some retirement accounts will allow non-spousal beneficiaries to leave the balance in the retirement plan and take RMDs over their lifetime. Or, they may be allowed to leave money in the plan for up to five years.

    Contact a Florida Estate Planning Attorney Today

    If you’re looking to pass retirement accounts to beneficiaries then our Florida estate planning attorneys can help. Whether it’s considering a trust, minimizing tax impacts or providing expert advice, we’re just a phone call away.

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    Battaglia, Ross, Dicus & McQuaid, P.A. is U.S. News and World Reports Tier 1 law firm in Florida, specializing in Estate Planning & Probate since 1958. With award-winning experienced estate planning attorneys, they can help you create a will to avoid complications for your family after your death.

    Schedule a free consultation today to get started.

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