naming beneficiaries
In naming beneficiaries, which is better with regard to stretch IRA?
a- primary beneficiary (husband) 100% and secondary beneficiaries 2 kids ( age 2 and 4) vs
b- naming all 3 as primary beneficiaries equally.
reason for question- husband has a shorter time to stretch the IRA , and should he die, the kids will have only the time( husband’s) that is left to take distribution. Verses, naming the kids aslo as primary beneficiaries then with regard to their portions, they will only have to withdraw at their own life expectancy rate, which will be @ 80 years.
secondly, if doing the second option, what will happen to husband portion if both he and I should pass away at the same time? Do I name the kids as secondary beneficiaries on that same beneficiary form so that the kids will get his portion?
Tx
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Permalink Submitted by mk foss on Sun, 2008-10-05 23:51
The typical beneficiary designation would be the spouse as the primary and the children as contingent beneficiaries. That way the spouse can use the uniform table (after a rollover) to minimize RMDs and name the children as primary beneficiaries – that gets a longer stretch.
If you name all three as the primary beneficiaries and the spouse predeceases generally the remaining beneficiaries will split his/her share so you don’t have to name them twice.
Another consideration is whether you want to name a custodian in case the children inherit while they’re still minors. Some people will name a trust rather than the children directly so that they don’t cash out the plan when they are no longer minors.
Permalink Submitted by Alan Spross on Mon, 2008-10-06 04:31
Also, note that a sole surviving spouse does not have to take any RMDs until the year the deceased spouse would have reached 70.5. Therefore, if the first spouse dies well before 70.5, there are many years of no RMD at all, and the funds could continue to grow.
But if the kids are named as primary designated beneficiaries, RMDs for all will begin right away and erode growth of the IRA and tax deferral. That might trigger the surviving spouse to roll over the funds to their own IRA, and if the survivor needs funds prior to age 59.5, they would then have to deal with a 72t plan to avoid early withdrawal.
With respect to simultaneous death of parents, most IRA agreements do not include specifics and the state version of the Simultaneous Death Act would come into play to determine the number of hours survival time that would need to pass between the deaths so that each would not be deemed to have pre deceased the other. For example, in a car crash the second spouse dies 18 hours after the first, but under the Act is deemed to have pre deceased the owner. The IRA funds would then pass to the contingent beneficiaries and their life expectancies would determine the RMD schedule.
Some IRA custodians may also accept a customized beneficiary statement specifying a survival time if you do not want to permit the Act to determine it. You might go with 30 or 60 days, for example, but if you elect to go that way be sure the contingent beneficiaries are correctly designated. My guess would be that you might encounted resistance to customization from many IRA custodians. They probably fear some conflict with their standard agreement could surface.