Avoid These 5 IRA Beneficiary Form Mistakes

Individual retirement accounts are the single largest asset for many retirees and their heirs.  Yet, all too often IRA owners make costly errors on their beneficiary forms that negate their best intentions, leaving loved ones in the dust.  Below are five beneficiary form mistakes to avoid:

1. Outdated forms. One of the most common mistakes is forgetting to update your beneficiary form after you divorce or remarry.  Your beneficiary form should be reviewed and updated after every major life event since “The IRA beneficiary form overrides your will.”
2. Naming your estate. By naming your estate as your IRA beneficiary, you deprive your heirs of a significant growth opportunity.  “[I]t limits the beneficiaries’ ability to stretch the IRA after the owner’s death.  It speeds up the income taxes on the distributions as well and can amount to hundreds of thousands of lost growth potential.”  Furthermore, the probate court would consider that asset to be part of your estate when you die, and it would be subject to creditors.
3. Lack of financial control. Do not name your child as sole beneficiary without establishing controls, especially if he or she lacks financial maturity.  If a loss of control is concerning, consider naming a trust as beneficiary instead.  This enables you to stipulate how much your beneficiaries will receive and when.
4. Forgetting to name a guardian. If you die when your child is still a minor, the court will appoint a guardian to oversee your assets until your child reaches the age of majority.  It might not be someone you would choose.  When selecting a minor child as a beneficiary, consider how you want that money controlled and select your own trustee or guardian. 
5. Missing form.  Even if you did everything right, this does nothing if your heirs cannot track the beneficiary form down after you pass away.  Without an IRA beneficiary form, the courts have no choice but to subject your heirs to the faster payout schedule, causing them to miss out on the tax-deferred stretch IRA.  To avoid needless headaches, get a copy of your beneficiary form from your IRA custodian, keep it in a secure location and tell your beneficiaries where to find it.

See Shelly Schwartz, 5 IRA Beneficiary Form Mistakes to Avoid, Bankrate.