Considerations When Designating The Beneficiary Of Your IRA

As more and more workers are saving for retirement through IRA’s and 401(k)s, the question that usually comes up is who should be named as beneficiary.  Who you name as beneficiary and how your pre-tax account is transferred could have significant tax consequences.

  • Spouse As Beneficiary

The simplest yet optimal way to to pass your IRA is to name your spouse as beneficiary.  Your surviving spouse will have four (4) options at your death:

  1. Roll over the assets into a new or existing IRA
  2. Transfer the assets to an inherited IRA
  3. Convert the assets to a Roth IRA
  4. Disclaim all or part of the assets

For purposes of this article, we will only discuss these options generally, and will not go into detail regarding the advantages/disadvantages to these four options.  As you can see, the surviving spouse has several options to choose from.  He or she can use the funds if there is an immediate need, allow the assets to compound tax-deferred for future retirement needs, or disclaim to other beneficiaries for tax benefits. [Read more…]