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401K/IRA Rescue

Planning for Distribution

The rules for distributions are very complex and should be factored in during the retirement planning phase. Two key components to remember: 1) required minimum distributions at age 70 ½; 2) what happens to 401(k) / IRA funds upon your death.

Naming Beneficiaries

When you name a beneficiary, you do so in a little box on the paperwork. For most people, this is an afterthought; however, this document has complete control and authority regardless of your will. One problem - you can unintentionally disinherit your grandchildren, especially if family does not pass away in the typical order. It is critical to have copies of beneficiary designations due to the complete control given to the beneficiary

Disinherit Uncle Sam

According to the IRS office, over 90% of all IRA’s are cashed in at the death of the second spouse. This triggers income and estate taxes that, depending on your state of residence, could trigger as much as 70 cents tax on every dollar. So, how do you disinherit Uncle Sam? The first thing is to name beneficiaries.

However, if 90% of all IRA’s are being cashed in, something is clearly wrong. This action triggers potential income and estate taxes. The easiest solution is for people to take the same amount of care and time in drafting their beneficiary designations as they do in drafting their will. It is important to put all the details in writing for who gets what and when. West Financial Group, Inc strongly recommends an IRA Asset Will¹ which lays out all the beneficiary details.

Your Tax Time Bomb

Because taxes have not been paid on retirement account funds, this could be your tax time bomb. With 90% of IRA accounts being cashed in at the death of the second spouse, you run the risk of making the IRS one of your beneficiaries. A comprehensive financial and legacy plan is essential to avoid this tax.

¹ A document that specifies how the assets in an individual retirement account (IRA) should be distributed upon the account owner's death. An IRA asset will is used instead of a financial institution's boilerplate beneficiary designation forms to provide a greater level of detail about how retirement account assets should be distributed.