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IRAs and 401(k)s:The Importance of Individual Retirement Account Planning

As defined benefit pension plans increasingly become retirement vehicles of the past, more and more Americans are faced with important planning decisions regarding their individualized retirement savings plans. While IRAs and 401ks are great for retirement saving, they are not naturally geared towards inheritance planning, which creates a need for clients to consider future planning.

IRAs and 401ks are generally “non-probate” assets, which means the funds in those accounts passes directly to named beneficiaries, rather than your estate. Thus, their disposition is not controlled by your Will. As such, attention must be paid to how you name your beneficiaries. Failure to properly consider primary and contingent beneficiaries can result in uncertainty regarding tax consequences and ultimate disposition of these assets.

The first step is to ensure that primary and contingent beneficiaries are named for all such assets. Second, consider whether you are comfortable with those contingent beneficiaries receiving the proceeds of your IRA/401k directly, or if another vehicle, such as an IRA trust or special needs trust should be named. Finally, make sure to consult with an estate planning attorney to ensure these desires fit well within your overall estate plan, and other estate assets.

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