Skip to site content
The Show

An Heir-Tight IRA

Money-Guy 08-28-2009

Today’s show is one of those nitty-gritty topics that may not always be the most fun or most exciting, but it is definitely one of the most important. Today I want to share the significance of making sure that your beneficiary designations are up-to-date and still reflect your posthumous wishes.

One thing that many individuals don’t realize is that the designation on your IRAs, life insurance, pensions, 401(k)s, and other retirement plans actually trump what your Will says. Another common misconception is that there is no point in naming contingent beneficiaries. When you leave the contingent section of the application blank,  it defaults to your estate, and, while you are correct to assume that it will pass according to your Will, you may not realize how much of a headache you can save your heirs by naming them as beneficiaries instead of forcing them to go through the probate process. It is absolutely necessary to review your designations after major life events such as deaths, births, marriages, and divorces.

When naming several beneficiaries, you also need to think about what happens if one of the beneficiaries pre-deceases you. Depending on how you title the designation(Per Stirpes or Per Capita), the pre-deceased’s inheritance may be distributed amongst the other co-beneficiaries or it could pass on to the pre-deceased’s heirs.

In addition to avoiding the probate process, another key reason you want to designate both primary and contingent beneficiaries on your IRAs is so that your heirs may take distributions based on their life expectancies as opposed to your life expectancy. Assume you don’t designate beneficiaries and you pass before you begin taking Required Minimum Distributions at age 70.5. The IRS code states that your heirs must withdraw all of the money within 5 years of your death  (more than likely resulting in a hefty tax bill!). Now let’s assume you still don’t designate beneficiaries but you pass away after age 70.5. Under this scenario, even though your will dictated where the assets went, your heirs are now forced to take distribution payouts based on your life expectancy rather than theirs (which is probably longer).

As you listen to the show, I also walk through some other scenarios such as how to handle your IRAs if you want a portion to go to charity. While some of this can be very dry, if you understand the process, there are some remarkable generational and tax-saving planning techniques that can be applied. One of those strategies, as you’ve heard in previous shows, is deciding to covert some of your IRA assets into Roth assets.

Towards the end of the show I share an article written by one of our close media contacts Erin Peterson. Erin wrote an article for Bankrate.com titled  “6 financial experts and their worst goofs“. In this article Erin interviews some top financial experts and, yes, even those of us well versed on financial topics have made some pretty poor decisions along the way. The article contains some goofs from Jean Chatzky, Ramit Sethi, Vicki Robin, Jonathan Clements, Dave Ramsey, and yours truly, Brian Preston. Take a look at it and hopefully you can learn from our mistakes!

Enjoy the Show?

Where You Can Watch and Listen:

Subscribe on these platforms or wherever you listen to podcasts for new episodes every Friday, live streams every Tuesday at 10am CT, and new highlight clips throughout the week.

Related Content

Free Resources

Financial Order of Operations®: Maximize Your Army of Dollar Bills!

Here are the 9 steps you’ve been waiting for Building wealth is simple when you know what to do and…

View Resource

Wealth Multiplier By Age

How much to save every month to become a millionaire.

View Resource

How Much Should You Save?

How much of your income can you replace in retirement? You can replace different portions of your income in retirement…

View Resource

Articles

Exclusive Sneak Peek of Millionaire Mission by Brian Preston

, ,

Read More

What’s the Best Bridge Account for Early Retirement?

, ,

Read More

Should We Switch to S&P Before Hiring a Financial Advisor?

, ,

Read More

Financial FAQs

Courses & Tools

How about more sense and more money?

Check for blindspots and shift into the financial fast-lane. Join a community of like minded Financial Mutants as we accelerate our wealth building process and have fun while doing it.

https://moneyguy.com/wp-content/uploads/2023/10/accent-icon-book.png

Millionaire Mission (Brian’s Book)

Buy Now
https://moneyguy.com/wp-content/uploads/2023/10/accent-icon-math.png

Know Your Number Course

Buy Now
https://moneyguy.com/wp-content/uploads/2023/10/accent-icon-pencil.png

The Money Guy Net Worth Tool

Buy Now

Recent Episodes

It's like finding some change in the couch cushions.

Watch or listen every week to learn and apply financial strategies to grow your wealth and live your best life.

FULL WinFinanciallyByIncome A 1

How to Win Financially Based on Your Income! ($30k, $50k, $100k, $150k)

Watch Now
Tightwad QA

Does Investing Over 25% Make You a Tightwad?

Watch Now
Dave Meyer Thumbnail

Should You Worry About a Housing Crash in 2024? with Dave Meyer of BiggerPockets

Watch Now