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In this video, I dig into what actually may happen to your IRA after you pass away, particularly if you are married and with even more emphasis on if you’re married and you have children from a previous marriage.
0:00 Should Your Second Spouse Be Your IRA 100% Primary Beneficiary
0:21 Example: Jason is in 2nd Marriage and Has a $3 Million Traditional IRA
1:07 Jason’s Estate Planning Goals
1:43 Estate Planning Differences Between Brokerage Accounts and IRAs
1:58 Estate Planning with Brokerage Account
4:12 Estate Planning with IRAs and a Second Spouse
7:12 Should Married Person Leave Their IRA to a Trust?
9:40 Should a Married Person Name Their Spouse and Children as Primary Beneficiaries?
12:22 Make Informed Decisions About Designating Beneficiaries of IRAs…(read more)
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Should Your 2nd Spouse Be Your IRA Beneficiary?
Choosing the beneficiary for your Individual retirement account (IRA) is an important decision that can have lasting implications for your loved ones. Many people may automatically designate their spouse as the primary beneficiary of their IRA, especially if it’s their first marriage. However, if you are on your second marriage, you may be wondering if your second spouse should be the beneficiary of your IRA. There are several factors to consider when making this decision.
One of the primary considerations when deciding on a beneficiary for your IRA is ensuring that your loved ones are taken care of in the event of your passing. If you have children from a previous marriage, you may want to ensure that they receive a portion of your IRA assets. In this case, you may want to designate your children as beneficiaries, either as primary or contingent beneficiaries, to ensure that they receive the assets you intended for them.
On the other hand, if you have a strong and stable relationship with your second spouse, you may want to designate them as the primary beneficiary of your IRA. This can provide them with financial security after you are gone and can also simplify the distribution of assets.
Another important factor to consider is the potential impact of estate taxes. Designating your spouse as the beneficiary of your IRA can have beneficial tax implications, as your spouse can inherit the IRA and continue to benefit from its tax-deferred growth. Non-spouse beneficiaries, such as children from a previous marriage, may face different tax treatment and may have to take required minimum distributions (RMDs) sooner, which could result in a larger tax burden for them.
It’s also important to consider the potential consequences of divorce. If you designate your second spouse as the beneficiary of your IRA and later divorce, they may still have a claim to the assets in the event of your passing. This may not align with your wishes, especially if you intended for your children from a previous marriage to inherit your IRA assets.
Ultimately, the decision of whether to designate your second spouse as the beneficiary of your IRA is a personal one that should take into account your individual circumstances and priorities. It’s important to have open and honest conversations with both your spouse and your children from previous marriages to ensure that everyone’s needs and wishes are being considered.
If you are unsure about the best course of action, it may be helpful to consult with a financial advisor or estate planning attorney who can provide guidance based on your specific situation. They can help you understand the potential implications of different beneficiary designations and create a plan that aligns with your wishes and the needs of your loved ones.
In conclusion, the decision of whether to designate your second spouse as the beneficiary of your IRA is an important one that requires careful consideration. It’s important to weigh the needs and wishes of your loved ones, the potential tax implications, and the impact of divorce when making this decision. Consulting with a professional can help you create a plan that provides financial security for your loved ones and aligns with your wishes.
I found the various taxes (estate, inheritance, income, capital gains) very confusing. I was the sole beneficiary on my Father's annuity and had to pay a significant income tax when I cashed it in. I found out later I should have taken it in increments, where it was still taxable but would not have kicked me up into such a high tax bracket.
What about naming the trust & the 2 kids the beneficiary? The trust would pay the wife and preserve the rest for his kids. While his 2 kids would get their portion up front.
Great information.
Thank you for all this amazing content. As a starting attorney in trust and estates, I find it very helpful.
Quick question, if I am an executor of an estate with no will, can I finance a car to a third party with a monthly payment at fair market value? The car is worth probably $10k.
Thank you I never considered that that’s valuable information
What about converting the IRA to Roth by using the proceeds from the brokerage account. Then put the Roth account into trust with the children as beneficiaries when the wife dies . No RMD, no IRMA, no taxes for the heirs.
Yep exactly!!
I would hope those adult children have advanced enough to take care of themselves without an inheritance. If the second wife ( me) has been married to him for over 30 years and commingled all assets , and he has been supporting and giving those children funds to the point it has harmed our well being , I believe it is fine what’s left of his assets is designated to me. We are co- owners in our trust and automatically inherit. I am the beneficiary on his irá and he’s mine.
Sounding pretty sharp.
My father passed away and stepmother ghosted myself and brother…. My father said I would be the executor of the Will… I have not seen the Will as of today… (2yrs later) I’m not sure how or why I have not been issued my fathers will nor heir of his established in the Will I assume that I was /am still part of…. I have done little research on this subject and looking for answers without paying out the a** for a lawyer
Fantastic and very clear explanation! Thank you.
Thank you for this – much appreciated – so helpful!
That's how I thought of it. My first thing would be to think of just name the kids as 1/3 beneficiaries when you have a second spouse. And two kids.
Excellent explanation, thank you! Now if we can just figure out if the IRS is expecting us to make corrective prior year RMD (2020, 2021….) distributions under the new 10 year rule we will be all set. Telling us the penalty is waived doesn't exactly clarify if we still need to make the distributions.
Makes me glad I'm still married to first wife. 🙂
Excellent,
If your kid is crazy leave them a $1
So many men sell out their children from their 1st marriage,.. to keep ''the boss' happy in their 2nd or 3rd marriages. It is so pathetic what men will do just to keep the peace,…even if it means disowning their older children.