Making mistakes on beneficiary designations is common.
Preparing for death is an unpleasant reality.
For this reason, people often avoid estate planning.
When taking action at the approach of death, stress and urgency can impair thinking.
According to a recent yahoo! Finance article titled “5 Retirement Plan Beneficiary Mistakes to Avoid,” taking steps in advance can reduce the chances of making mistakes.
Those who are working on their estate plans should be aware of common beneficiary mistakes and how to avoid them.
What are these common mishaps?
Failing to designate a beneficiary for retirement accounts.
Most working adults have a retirement account.
Often they are given the option to designate a beneficiary when the account is opened.
Sometimes, adults delay doing so because they do not have a spouse or children.
Even if a person is not married, it is important to designate a beneficiary.
And the recipient of the funds need not even be a person.
It can be a trust or a charity.
Forgetting to review beneficiary designations for many years.
Life circumstances change.
Relationships come and go.
People we love leave us through death or divorce.
For these reasons, it is important to review beneficiary designations regularly.
Failing to do so could leave your wealth to someone you barely know anymore and leave your loved ones with nothing.
To avoid this mistake, you should review beneficiary designations every three to five years when you update your estate plan.
Not designating your spouse as a primary beneficiary for a retirement account.
The SECURE Act of 2019 changed how IRAs can be inherited.
Non-spousal beneficiaries are no longer allowed to stretch out disbursements from IRAs over their lifetimes.
Rather, the IRA must be emptied within 10 years of your death.
When the beneficiary is a minor child, this heir must follow the withdrawal rules of Required Minimum Distributions (RMDs) after reaching the legal age of majority.
By designating your spouse as the primary beneficiary, your IRA funds can be rolled into their own IRA and used as if these funds originally belonged to your spouse.
This affords asset protection benefits and greater flexibility when it comes to the timing and amount of withdrawals.
Naming the estate as a beneficiary.
While it is legal to designate an estate as a beneficiary, it can complicate distribution of assets.
If you die with debt, assets in your probate estate could be claimed by creditors.
With a last will and testament, the estate assets are distributed through the probate court only after any debts are paid.
Waiting to create a retirement plan until late in your career.
Although you may be young and retirement seems far way, you should be setting money aside early.
When preparing for retirement early, you should begin estate planning.
Working with an experienced estate planning attorney can help you avoid making common mistakes on the beneficiary designations for your retirement accounts.
Reference: yahoo! finance (Dec. 19, 2022) “5 Retirement Plan Beneficiary Mistakes to Avoid”