Making Your Retirement Plan Work for You!

Tax favored retirement plans such as Traditional or Roth IRAs are meant to help you save for retirement.  However, because your life and ultimate demise are unpredictable, there are a number of important caveats to remember about your retirement plan.

One frequently overlooked aspect of retirement plans is the beneficiary listing.  Your IRA is generally not a part of your trust or general estate plan, but it is part of your comprehensive estate plan.  It passes without probate to the beneficiary listed on your forms.  Keeping track of who is listed as your beneficiary and your contingent beneficiary is just as high a priority as keeping the distribution provisions of your trust up to date.  Failure to verify your beneficiary listing could result in one of your largest assets transferring to someone to whom you do not want the account to go, such as a former spouse or a person who has predeceased you.  It is also not uncommon for financial institutions to lose the beneficiary listing.

Additionally, making sure that your beneficiary is an individual and, if there are multiple beneficiaries you have specified percentages equaling 100% will allow the beneficiaries to have a stretch IRA, which can result in significant tax savings.  You should consult with your tax advisor about the advantages of stretch IRAs.

Your IRA is also basically a restricted bank account.  However, even though its use is restricted, it is not necessarily inaccessible.  There are plenty of reasons to treat withdrawing from an IRA as a last resort, most notably of which is that you want to save it for the future.  However, if you need to withdraw money early from an IRA, you should make sure you use it for one of the penalty-free purposes allowed by Congress including college expenses, deductible medical expenses, or putting a down payment on a house.  Again, you should make sure you have spoken with your tax advisor before you withdraw the funds.  There are certain qualifications and rules in order for your withdrawal to be penalty-free.  Making sure you follow the necessary formalities can save thousands in tax penalties.  It is also extremely important to remember to take required minimum distributions (RMD) beginning with the year you turn 70 ½ years old.  Your financial institution should be able to calculate your RMD for you.

Although we spend the majority of our time working with assets that are subject to probate, I don’t want you to overlook the importance of your IRA in your estate plan.  By being proactive enough to create an estate plan, it’s obvious that preserving your financial future is important to you and for your family.  Additionally, you have to work hard in order to amass your estate and retirement plan.  Staying on top of your IRA can save your heirs headaches in the future and preserve the majority of the account, which is one of the top goals in estate planning.  Alternatively, overlooking these common IRA pitfalls can result in the ultimate beneficiary of your labor being the U.S. Department of Treasury.

Estate Planning: The Price of Organization, Rewards, Gifts, and Wondrous Tax Things…
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