There are many issues to consider when deciding distribution of your property and assets to your heirs. It is important to consider all of your financial accounts as you begin to work on estate planning, including any retirement accounts you may hold.
Individual Retirement Accounts (IRAs) provide many benefits to holders, including investment growth and income tax deferral, and there can also be advantages for those that inherit such accounts, as long as you make sure to complete the process correctly.
The most important thing to do first is figure out who you want to name as a beneficiary. Because the completed beneficiary form takes precedence over the contents of a will, it is critical that this form names who you want to be the beneficiary of this account. Second, you need to make sure you update this form, along with your will, if anything changes in your personal situation.
There are several different ways for beneficiaries to deal with an IRA that has been left to them. Factors that can influence disposition might be whether the recipient is a spouse, or how old the intended beneficiary is. There are different advantages and disadvantages to the various options, so it is important to thoroughly understand all of the laws. Regulations may affect withdrawal options and taxes. All the implications should be understood and considered before making a final decision.
When you begin to make an estate plan and think about how you want to allocate an inheritance to an heir, it is always a good idea to get educated and understand all of the options and effects that are available to you.
Source: Orlando Sentinel, "IRA advantages can be passed on to beneficiaries - but you need to avoid pitfalls," Elliot Raphaelson, Oct. 10, 2012.