Beneficiary Designations for Traditional IRAs and Retirement Plans

If you have a traditional IRA or participate in an employer-sponsored retirement plan such as a 401(k) plan, you are generally required to complete a beneficiary designation form with the IRA custodian or plan administrator. As you may know, the beneficiary or beneficiaries you name (you can generally name more than one) will receive the remaining funds in your IRA or plan account after you die.

What you may not realize is that your choice of beneficiary may have implications in other important areas, including:

  • The size of the annual required minimum distributions (RMDs) that you must take from the IRA or plan during your lifetime

  • The rate at which the funds must be distributed from the IRA or plan after your death

  • The combined federal estate tax liability of you and your spouse (assuming you are married and expect estate tax to be an issue for one or both of you)

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