Are your IRA beneficiaries set up correctly?

Are your IRA beneficiaries set up correctly?

If you haven’t reviewed your IRA beneficiaries in a while, you may find that the designated beneficiaries on your IRA are not who you intended them to be, especially if you have grandchildren.

For instance, if you name your three adult children as your designated beneficiaries and one of those children predeceases you, then the share that would have gone to the deceased child will then pass, in equal portions, to the two remaining designated beneficiaries rather than to the children of the deceased beneficiary (your grandchildren).  This type of IRA beneficiary is called Per-capita and is the default beneficiary format for all Charles Schwab IRA Beneficiary Designations.  However, if you would rather the deceased beneficiary’s share of the IRA pass to his/her children, then you would need to stipulate that on the Schwab IRA Beneficiary Designation form.  This type of IRA beneficiary is called per stirpes.

Per Stirpes is a Latin term forby branch”.  An IRA is distributed per stirpes if the owner of the IRA intends for each branch of the family to receive an equal share of the account.  When the beneficiary in the first generation of a branch predeceases the owner of the IRA, the share that would have been given to the deceased beneficiary would be distributed amongst the deceased beneficiary’s heirs in equal share.  Here’s a basic example of how a typical per stirpes beneficiary designation would work in the event of a deceased beneficiary:

Reviewing your beneficiary designations is never a bad idea, but if any of your named beneficiaries has already deceased please call us.  We can work alongside your attorney to help implement the appropriate beneficiary structure for your retirement accounts.

Sources used:  The Charles Schwab IRA Beneficiary form & investopedia.com

Disclosure:  This article is written for informational purposes and is not intended to be legal or financial advice.  You should consult an attorney before making any decisions or changes to the beneficiary designation of an IRA.  Per stirpes definitions may vary from state to state.  Some states do not recognize per stirpes designations.

Heath Hightower

Heath Hightower

As a CERTIFIED FINANCIAL PLANNER™ professional, Heath believes in giving solid, unbiased advice, and building relationships with clients that make a tangible, positive difference in their lives. He helps clients with all aspects of their financial lives, such as retirement planning, education planning, charitable giving, and investing.

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