3 Things To Check On A Beneficiary Form … Besides The Beneficiaries

By Jeffery Levine, IRA Technical Expert  

Follow Me on Twitter: @IRAGuru4EdSlott

The Beneficiary isn’t the only thing you must check on your own or a client’s beneficiary form. Here’s a list of 3 other important things to make sure are present on the beneficiary form. Do you think there are others? Email us at [email protected]. 
 

1. Does the beneficiary form work on a per stripes or per capita basis? – Ideally, when you name beneficiaries on a beneficiary form, you don’t just stop with the primary beneficiaries, but you add contingent beneficiaries as well. But when are those contingent beneficiaries entitled to any funds and when they are, how much are they entitled to? The answer to those questions may depend, in part, on whether your beneficiary form follows per stripes rules or per capita rules. Those rules are beyond the scope of this article and, in some cases vary slightly from state to state, but your financial or estate planning professional should be able to explain them to you.
    
2. Are there any restrictions on who you can name as a beneficiary? – You might think that just because your IRA money is yours, you can name whoever you want as your beneficiary whenever you want to. From a tax code perspective, that’s true, but believe it or not, those seemingly inalienable rights can be restricted. Some beneficiary forms, for instance, may not allow a trust to be named as a beneficiary. Others may limit the number of primary or contingent beneficiaries you can name. In other cases, you options may be limited in other ways. Most custodians won’t place these types of restrictions on your account, but are you sure yours doesn’t?
    
3. Does the beneficiary form allow the stretch? – Under the tax code, a designated beneficiary (generally just a living, breathing person) can stretch distributions from an inherited IRA over their life expectancy. Doing so helps to maximize the potential value of an account by minimizing the impact of income taxes while maintaining tax deferral for as long as possible. The stretch can be limited however. For instance, a retirement account may require that any beneficiary – designated or not – empty an inherited account within 5 years. This is more common to see in plans than it is in IRAs – most IRA providers now allow the stretch – but in either case it’s nothing to take for granted. Do your homework and double check now, before it’s too late.