In this short video, Joe and Al discuss five of the most common mistakes people make with their IRA (individual retirement account) beneficiary forms. Find out why naming the trust as the beneficiary of your retirement account is not the best idea. Feel rest assured that your legacy remains intact and is handed down to the right people after you pass.

Important Points:

0:04 “Some of this seems logical but we’re seeing these mistakes over and over again like for example: some of you have IRAs or 401(k)s where you don’t even have a beneficiary form on file”

0:26 “How about if it’s an outdated form? You have your prior spouse on there…guess what? That spouse is going to receive your IRA or 401(k) unless you change the beneficiary statement”

1:36 “Here’s the biggest one – naming the trust as the beneficiary. Huge, huge mistake because a trust is an entity – not a human being. It doesn’t have a life expectancy”

2:11 “In most cases, people do not understand the complexity of naming a trust as the beneficiary on their retirement account”

2:19 “In all cases, name your spouse first if you’re married or the people you want it to go to and at the very end of your long list of beneficiaries, then you can name the trust”

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5 Common IRA Beneficiary Form Mistakes

Individual Retirement Accounts (IRAs) are a popular and beneficial tool for saving for retirement. However, many individuals make mistakes when filling out their IRA beneficiary forms, which can lead to unintended consequences down the road. To ensure you avoid these potential pitfalls, here are five common mistakes to be aware of:

1. Not naming primary and contingent beneficiaries: One of the most common mistakes people make when filling out their IRA beneficiary forms is only naming a primary beneficiary. However, it is essential to name both primary and contingent beneficiaries. The primary beneficiary is the person or entity who will inherit the IRA assets upon your death, while the contingent beneficiary is the backup choice in case the primary beneficiary is unable to receive the funds. By naming a contingent beneficiary, you ensure that your assets will be distributed according to your wishes, even if something unexpected happens to your primary beneficiary.

2. Failing to update beneficiary designations: Life is constantly changing, and your IRA beneficiary designations should reflect those changes. It is crucial to update your beneficiary forms whenever there is a significant life event, such as getting married, divorced, having children, or facing the death of a beneficiary. Failing to update your beneficiary designations can result in your assets being distributed to the wrong individuals or entities, causing unnecessary complications for your loved ones.

3. Not considering the impact of required minimum distributions (RMDs): If you name an individual as the beneficiary of your IRA, they will have the option to stretch the distributions over their lifetime, taking advantage of potential tax-deferred growth. However, if you name a non-individual beneficiary, such as an estate or charity, they may be subject to shorter distribution periods, potentially resulting in higher taxes. Therefore, it is essential to consider the impact of RMDs when naming your beneficiaries to ensure they can maximize the tax benefits associated with an inherited IRA.

4. Neglecting the importance of per stirpes and per capita designations: Per stirpes and per capita designations are critical for ensuring that your assets are distributed in line with your intentions, especially in situations where a beneficiary predeceases you. Per stirpes designations dictate that if a primary beneficiary dies before you, their share passes to their children. Per capita designations, on the other hand, divide the assets equally among the surviving primary beneficiaries. Understanding the implications of different beneficiary designations is crucial to ensure your assets are distributed as intended.

5. Forgetting to review and update beneficiary designations regularly: Lastly, it is essential to review your beneficiary designations regularly to ensure they still align with your wishes. Failing to do so can result in outdated or incorrect beneficiary designations, causing confusion and potential legal battles among your loved ones. As life circumstances change, you should always take the time to review and update your IRA beneficiary forms to ensure your assets go to the intended individuals or entities.

In conclusion, filling out IRA beneficiary forms correctly is crucial for ensuring your assets are distributed according to your wishes after your passing. By avoiding these common mistakes, you can help ensure a smooth transition of your IRA assets to your beneficiaries, providing them with the financial security you intended. Remember to seek professional advice when deciding on your beneficiary designations to ensure they align with your overall estate planning goals.