If you are the beneficiary but not the spouse of the account owner for a Traditional IRA, you probably have more inheritance options than you might think.

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Individual Retirement Accounts (IRAs) are a popular retirement savings option used by many people. They offer the advantage of tax-deferred earnings and contributions, and some even provide tax-free withdrawals. One important aspect of an IRA is designating a beneficiary, which ensures that your assets go to the person or people you want to inherit your account after your death. Here are some tips on how to designate your IRA beneficiary.

Understand beneficiary options

When designating a beneficiary for your IRA, there are several options to consider. The first is a primary beneficiary, which is the person or people who will inherit your IRA assets after your death. You can also name a contingent beneficiary, who will receive the assets if the primary beneficiary is deceased or unable to inherit. Additionally, you can choose a per stirpes beneficiary, who is a person who will inherit your assets equally with their descendants.

Consider your estate plan

It’s important to consider your overall estate plan when designating an IRA beneficiary. If you have a trust, you may consider naming the trust as the primary or contingent beneficiary. In some cases, this can provide more control over how your assets are distributed after your death. You should consult with an attorney to ensure your IRA beneficiary designation is aligned with your overall estate plan.

Review and update your beneficiary designation

Your life circumstances and relationships may change over time, so it’s important to review and update your beneficiary designation regularly. Events such as marriage, divorce, birth or death of a beneficiary, or a change in financial situation may require you to update your designation. It’s also important to review your beneficiary designation after any major life events, such as inheriting wealth from a family member or winning the lottery.

Be specific and clear

When designating your beneficiary, it’s important to be specific and clear. Make sure to include the full legal name of each beneficiary, their relationship to you, and their social security number or tax identification number. Consider naming both primary and contingent beneficiaries and specify the percentage of the account each beneficiary will receive.

Understand tax implications

Depending on the type of IRA you have, there may be tax implications for your beneficiary. Traditional IRAs are subject to income tax when distributions are taken, while Roth IRAs are tax-free. Also, inherited IRAs have different distribution rules and tax implications than non-inherited IRAs. It’s important to consult with a financial advisor or tax professional to understand the potential tax implications for your IRA beneficiary.

Overall, choosing a beneficiary is an important decision and requires careful consideration. By understanding your options and updating your designation regularly, you can ensure that your assets are distributed according to your wishes after your death.