The Importance of Carefully Designating IRA Beneficiaries

2017-11-08T20:14:37+00:00

By Stephen Benevento, CFP™, CTFA
From the Summer 2015 Edition of Values

Consider a parent who designates her two children as her primary beneficiaries—50 percent to child A and 50 percent to child B.

If child A predeceases the parent, her 50 percent share would pass to child B upon the death of the parent, leaving nothing to the children of child A. The industry standard for IRA beneficiary designations is to apply this per capita designation—frequently not the intention of the IRA owner.

Under per capita, contingent beneficiary designations do not apply if any of the primary beneficiaries are still alive. Therefore, listing your children as the primary beneficiaries and your grandchildren as the contingent beneficiaries does not provide for the equal distribution to all of your heirs. In contrast, a per stirpes designation at the primary beneficiary level can.

Under per stirpes, if child A predeceases her parent, her 50 percent share would be passed in equal shares to her children upon the death of the parent.

While commonly used in wills and trusts, the term per stirpes is often not considered when naming beneficiaries of an Individual Retirement Account (IRA). When reviewing your IRA beneficiary designations, first determine what methodology applies at the time of distribution. If it is per capita and you wish to change it, contact the financial institution holding your IRA to determine the requirements to apply the per stirpes designation. Not all institutions will have the same requirements.

If you have an IRA at Walden there is no better time than now to call your portfolio manager or account administrator to ensure that your beneficiary elections are aligned with your intentions.

As always, we strongly recommend consulting with your tax advisor prior to making any decisions related to your tax or estate plans.