Every few years, IRA expert Ed Slott and his staff revisit locations around the US where they announced two-day seminars covering the most significant changes made regarding the IRA, 401(k) and other general retirement plans.
These seminars are extremely popular and are essential for certified financial planners who advise their clients. The seminars are also invaluable to the media members attending these seminars due to the complexity of these regulations and due to the major changes made since 2020.
I’ve always been at these seminars, so too are the most capable certified financial planners who want to provide accurate advice to their clients. More than 400 pages of important information are provided to participants in these seminars.
Unfortunately, if the owner or beneficiary of a retirement plan makes an error in terms of naming the beneficiary or managing the account assets, the outcome could be a loss of hundreds of thousands of dollars that would not be the beneficiary of the choice.
If you are the owner of a retirement plan with important assets, it is important to make your decision regarding managing these assets with the advice of a well-trained financial planner. It’s too easy to make costly mistakes. In this column, the subsequent columns address many ways to avoid costly mistakes.
The importance of the IRA beneficial form: Many IRA account holders do not understand the importance of the IRA beneficial form. You need to understand the importance of it. This is a document that controls whether or not the selected beneficiary receives assets that they wish to receive.
Many retirement account owners believe they can name the beneficiaries of their IRAs at will. That’s wrong!
If you name the beneficiary at your will, it is not relevant. Only beneficiaries designated on the IRA beneficiary form will be recipients of the IRA assets. If you do not specify a beneficiary on the IRA beneficiary form, the result is the same as not naming the beneficiary at all. In that case, your IRA assets will become part of your property, and they will become probate assets and be distributed according to state law.
If you specify a beneficiary on the beneficiary form, make sure that the total amount of the specified assets is up to 100%. For example, if you have multiple beneficiaries, you must specify the percentage that each beneficiary receives. If the total does not reach a maximum of 100%, the beneficiary will not receive what it intended.
It is also important to designate “contingent” beneficiaries. So, for example, if you name your surviving spouse as the 50% beneficiary of your IRA, if your spouse assumes you, you will need to specify who will receive the assets. So, as an example, you should specify the percentage that an accidental beneficiary will receive. Example: You must specify that 50% of your wife’s inheritance will go to the nominated son and 50% will go to the nominated daughter.
Naturally, if one of your appointed beneficiaries is the premise, you will need to immediately modify the beneficiary form to specify a new beneficiary and a new conditional beneficiary.
Naturally, if circumstances change, such as remarriage, you will need to immediately update your beneficiary form, not your will. Changing the terms of the will is not related. If you remarried and did not modify the beneficiary form, upon your death, the assets will be sent to the person you specified on the beneficiary form.
If the bank receives a change of ownership, make sure the beneficiary form is still maintained with the bank. In a book he provided to seminar attendees, Ed Slot said, “It’s not uncommon for a broker/advisor to move to another company. When a broker/advisor switches to a new company, documents are often lost in shuffle.
Elliot Raphaelson welcomes your questions and comments at rapelliot@gmail.com.
