Protect your IRA. These are words you should live by. The IRA rules guarantee that your beneficiaries can inherit your IRA and reap the benefits of extended tax-deferral or even tax-free compounding over their life expectancies, but only if they are appropriately named and the IRA beneficiary form can be found when needed. Now is the time to address this issue. Don't leave this for your IRA provider to take care of. If beneficiary forms are lost or misplaced, your beneficiaries may lose the ability to maintain the inherited IRA over their lifetimes. Thus, let these be your "IRA New Year Resolutions" for 2010:
- I will obtain and keep a copy of each of my IRA beneficiary forms and give copies to my financial advisor and attorney.
- I will tell my beneficiaries where to locate my IRA beneficiary forms and provide them with contact information for my financial advisor and attorney and keep this information up to date.
- I will make sure that I have named a primary beneficiary and a secondary (contingent) beneficiary for each IRA I own.
- If there are multiple beneficiaries on one IRA, I will make sure that each beneficiary's share is clearly identified with a fraction, a percentage or the word "equally" if that is applicable. I will also make sure the beneficiary designation is "per stirpes" so that the share of a beneficiary who predeceases me will automatically go to his or her children, unless I specifically want other treatment for contingent beneficiaries.
- I will make sure that my IRA trustee or custodian has my current beneficiary selection on file and that its records agree with my choices.
- I will ask my IRA trustee or custodian to countersign and return a copy of my current beneficiary designation election form and will do so anytime I change my beneficiary elections.
- I will review my IRA agreement to determine if it contains beneficiary default provisions in case my beneficiary designation form cannot be located; if these default provisions are not to my liking I will consider changing my IRA trustee or custodian.
- I will review my IRA beneficiary forms at least once each year to make sure they are correct and properly reflect any changes that occur during the year such as new tax laws or major life events, including deaths, births, adoptions, marriages and divorces.
- I will not name a trust as a beneficiary of my IRA without a valid reason (e.g. protection against the creditors of my heirs, control the rate of distribution after my death, protect the inheritance of children from a first marriage, etc.) and without advice from a competent attorney or advisor who is well-versed in the rules regarding IRAs; to do otherwise risks elimination of important tax benefits for my heirs.
- I will NEVER, EVER let my estate be the beneficiary of my IRA as this will result in the worst possible tax scenario for my heirs; if I have no heirs, I will consider designating one or more charities as a beneficiary of my IRA.
By IRA Technical Consultant Marvin Rotenberg and Jared Trexler
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