For many individuals, retirement accounts are one of the largest assets that they have to pass on to loved ones throughout estate plan. Without the assistance of a knowledgeable estate planning professional, however, it is very common to make mistakes including with IRA’s.
In the hopes of helping you avoid future mistakes involving IRAs, this article review some of the most common error. It is important to understand, though, that not even the best advice can replace the assistance provided by an experienced estate planning lawyer.
# 1 – Not Updating Contingent Beneficiaries
Assets in an IRA account often transfer automatically to the appointed beneficiaries following the account holder’s death. The process does not proceed through probate.
Unfortunately, there are a number of factors that can cause a person’s wishes for who should be a beneficiary to change including deaths, births, marriage, divorce, change of mind, and a number of other life events
If your wishes for who should be a beneficiary under an IRA account change, it is critical to update the named beneficiaries. Failure to do so can result in assets passing in an undesirable manner.
# 2 – Failing to Consider a Trust as an IRA Beneficiary
There are a variety of benefits to appointing a trust as an IRA beneficiary.
Some of these advantages include avoiding having an incorrect contingent beneficiary named at the point of a person’s death, protecting assets if the desired recipient if a beneficiary is a minor, and protecting an IRA from intentional withdrawal.
The primary benefit of using an IRA beneficiary trust rather than a standard revocable living trust is that an IRA is capable of making sure that compliance with tax laws are satisfied.
# 3 – Not Understanding IRA Regulations
Most people who know about IRAs are familiar with the numerous penalties that can result if a person attempts to collect on these funds too early. While these warnings are correct, there are some substantial loopholes.
With Roth IRAs, the money placed in these accounts has already been taxed and a person is capable of withdrawing them for any reason. An individual is also able to withdraw from a traditional IRA without facing the 10 percent penalty if the individual is making a first time home purchase.
# 4 – Placing too much in an IRA
As of 2019, person is only able to annually contribute either $6,000 per individual to a Roth IRA or a traditional IRA. If a person is over the age of 50, this amount increases to $7,000. Unfortunately, many individuals each year do not adhere to these restrictions and as a result end up facing additional taxes and/or penalties.
Speak with a Knowledgeable Estate Planning Lawyer Today
No matter if it’s an IRA or questions about advance healthcare directives, the estate planning process is complex. If you need the assistance of an experienced estate planning attorney, do not hesitate to speak with a skilled attorney.
Contact Ettinger Estate Planning today to schedule a free initial consultation.