FAQ: Can I Leave An IRA to My Heirs?

Since retirement accounts often make up a large portion of a person’s estate, it’s no wonder we get many questions about them. Unfortunately, many mistakes occur when someone adds their retirement accounts to their estate plan. You must include your retirement accounts in your estate plan, but it must be done correctly. One question we are often asked is, ‘can I leave an IRA to my heirs?‘

Leave an IRA as an Inheritance

An IRA is an account that allows you to save money for your retirement on a tax-free or tax-deferred basis. As an incentive, many companies will match their employee’s IRA investments up to a certain amount.

When you set up your IRA, you will be asked to fill out a Beneficiary Form. Since you may have been with the company for many years, you may have forgotten who you assigned as a beneficiary. If you still have money in your IRA account when you pass away, you can request the money to be left to an individual.

Some mistakes that are made when hoping to leave your IRA to your heirs are:

• Not completing the Beneficiary Form
  Perhaps you needed some time to think about who you want to leave your retirement funds to and then forgot to go back and fill in the information. We see this mistake often. When you work with an experienced estate planning attorney, we can remind you to check this.
• Leave it in your will
  You cannot put your IRA in your will. If anything, the will may be contested due to this inconsistency, causing your loved one’s time, money, and arguments. You (hopefully) named your beneficiaries for your IRA, and that is who will receive the money. If you did a DIY will and listed your retirement funds, the beneficiary on the IRA form would have priority.
• Forgetting to update the Beneficiary Form
  Your estate plan should be reviewed and updated every 3-5 years. And that includes updating the Beneficiary Form of your IRA.

Tips for Setting Up IRA Beneficiaries

You may work for a company that allows you to set up a 401(k) or an IRA for your retirement account. With a 401(k), your beneficiary will most likely be your spouse. If you wish to leave the funds to someone else, you must have your spouse’s signed approval. But with an IRA, you can name anyone as your beneficiary. Do some research and choose what is best for you.

Many tax changes have happened over the last couple of years. One change concerning your IRA is that your beneficiary must withdraw the total amount of the IRA inheritance within 10 years of your death. Many people like to take payments instead of a lump sum to avoid being bumped into a higher tax bracket for a given year.

Another option is to leave your IRA funds to a trust. This allows even more control over how the money is given to your heirs.

An experienced estate planning attorney can explain these options and more to you.

DuPage and Cook County Will and Trusts Attorney

Do you have questions about establishing beneficiaries for your IRA? Choosing an experienced estate planning attorney is important to determine the best decisions concerning your heirs and beneficiaries. To schedule a consultation with the experienced estate planning attorney at  Estate and Probate Legal Group, call us at 630-864-5835.

AREAS WE SERVE: Cook, DuPage, Kane, Lake and Will counties