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How to Handle Retirement Accounts in Your Estate Plan?


A will is the basic instrument in your estate plan. Your will directs your personal representative to distribute your property to your heirs. However, retirement accounts are handled differently from other types of property. If you want to transfer your retirement accounts to your loved ones, you need to take additional steps other than creating a will. Let’s look at some of the considerations for retirement accounts and how retirement accounts need to be addressed in your estate plan.

Retirement Accounts Typically Have Beneficiaries

Most retirement accounts have beneficiary designations in the event of the owner’s death. Upon your death, your retirement account is transferred directly to a beneficiary. The account does not pass through your estate. However, even though a retirement account does not pass through your probate estate, the value of the retirement account may be included in the taxable value of your estate. Therefore, high-net-worth individuals may need to take additional steps to avoid estate taxes if they have retirement accounts that may have substantial value upon their death.

In a high-net-worth situation, an individual could use retirement accounts as a charitable contribution. Leaving the account to a charity if heirs do not need the funds could be an effective tool for tax planning. The key is to consider all potential uses for the retirement account and develop a plan that utilizes the funds in a way that benefits the estate and your heirs while accomplishing your financial goals.

Encompassing Your Retirement Accounts into Your Estate Plan

The first step is to review your retirement accounts. Different retirement accounts might have certain restrictions and provisions that could result in tax implications for beneficiaries.

For example, a beneficiary may need to take required minimum distributions (RMDs) from a tax-deferred retirement account which could result in an unexpected tax burden. Instead, you might want to consider placing a tax-deferred retirement account into a trust so that you can extend distributions, protect the funds from financial risks, and control how the beneficiary uses the funds. Trusts are just one of the tools that you might want to consider when including retirement accounts in your estate plan.

IRAs, 401k accounts, pensions, and other retirement accounts have complex tax implications and distribution rules. Many owners do not understand the rules and restrictions. Beneficiaries may be completely in the dark when inheriting a retirement account. Creating the right estate plan can reduce the risk that your loved one might inherit a financial burden or that the money is lost because of a mistake or error made by a beneficiary who is unfamiliar with tax laws governing retirement accounts.

Castle Wealth Group is Your Firm for Holistic Wealth, Estate, & Tax Planning

Creating an estate plan that includes retirement accounts can be tricky. You need to carefully consider all options to determine how to structure an estate plan that provides for your family’s financial wellbeing after your death. Working with a professional who understands estate planning, retirement planning, and financial planning ensures that nothing is overlooked.

The Castle Wealth Group handles all aspects related to financial planning, including estate, tax, and retirement planning. We can create a comprehensive plan that utilizes a variety of financial and estate planning tools to accomplish your goals.

If you have questions, call (844) 885-4200 to speak with a knowledgeable representative.

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