Is the IRS Your Biggest Beneficiary?
About the author: Curtis has earned the Life and Health Insurance licensure, has passed the Series 66 examination, and has earned a degree from the University of Nevada, Reno. He has over 16 years of experience in the financial industry, helping others protect, grow and manage their wealth. Curtis helps clients create customized strategies for their portfolio based on their unique financial goals.
Don’t Let the IRS Become the Biggest Beneficiary of Your Retirement Accounts
One of the simplest things you can do is set up your beneficiaries properly, however many times this is something both clients and advisors overlook. Can you imagine the IRS getting the biggest portion of your retirement assets when you pass away? Did you work all those years, saving and sacrificing so your family or charity of choice gets less than Uncle Sam? Just think, if you or your advisor had taken a few minutes to set this up properly, things can pass as intended, and Uncle Sam can receive its fair share instead of too much.
I had a couple who were just transitioning into retirement come into the office a few weeks ago. They had both recently left their jobs and were looking forward to their new adventures in retirement. As we went through our initial meeting, they both assumed that they had named each other as the primary beneficiary and their children as their contingent beneficiaries. They also stated this was not something they had discussed or revisited with their current custodian or advisor in many years. Upon review of these accounts we found that it was their Living Trust that had been named the primary beneficiary of both retirement accounts.
When a Living Trust is set up as the primary beneficiary of a retirement account, this can create a massive tax nightmare unless that trust is set up properly by an Estate Planning attorney. If these beneficiary forms had been left unchecked, the IRS could have ended up being the biggest beneficiary of their retirement assets. This came as a shock to the couple as it is something that had not been explained to them by their advisor or Estate Planning attorney.
There are many ways to be more tax efficient when setting up your beneficiaries. For children or non-spouse beneficiaries you can consider a Stretch IRA, where they are able to mitigate the taxes over a longer period of time. If you have charitable intent, there are a myriad of strategies that can be used to be tax efficient and tax smart. There is no perfect way to set this up for everyone as there is no plan A, B or C, it is all dependent on your individual situation and why it is paramount you have these conversations with your network of professionals.
In 85 years, there are 44,705,682 minutes of life lived; that is nearly 45 million minutes! All it takes is approximately five of these minutes to set up your beneficiaries properly on a form, those five minutes can end up saving your beneficiaries a lot of money and keeping extra dollars from being filtered to Uncle Sam. Make sure you are having those conversations with your network of professionals, so those five minutes don’t end up costing you.