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Thursday, May 2, 2024
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Case Studies |
Changing IRA Beneficiaries Now, Before or After
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Case:
Richard Stevenson, 74, is a university professor and ex-Marine. After serving two tours, he returned to the States and began his lifelong dream of becoming a teacher. He received his bachelor's from a local college and his master's and doctorate from a State University. Soon thereafter, he was offered a history teaching position with the University, which he gratefully took. Amazingly, he taught full time at the University for almost 40 years. During that time, he was named Professor of the Year five times! He now works on a part-time basis, staying active with the university and its students. Richard married his high school sweetheart, Sue. Sue and Richard have been married for almost 50 years and have two children, Richard, Jr., and Linda.
While Richard never became wealthy as a university professor, he did believe strongly in "saving for a rainy day." As a result, Richard consistently put money away every month into his retirement account. This plan has paid off well because his retirement savings have grown to approximately $1.5 million. However, several years ago, when Richard was approaching his 70s, he was disappointed to learn that he was required to begin taking distributions from his retirement account. He still had sufficient income and wanted his savings to continue to grow. Richard, on advice from his CPA, elected to have his wife be the sole IRA designated beneficiary, from his plan. He had considered naming a charitable remainder trust for his wife as the beneficiary of his retirement plan but was concerned he would be required to take larger income distributions from his IRA.
Question:
Is there a way for Richard to name the University as part or sole beneficiary of his retirement account? Can he still do this even though he is past age 72 and has begun taking distributions?
Solution:
Yes, in essence, it makes no difference who you name as beneficiary in determining your minimum distributions (one exception is where your spouse is sole beneficiary and she is more than 10 years younger than you). Moreover, you can change beneficiaries at any time during your lifetime. In addition, post mortem changes may occur through disclaimers during the year following the year of the IRA holder's death. Distributions after the IRA holder's death can vary depending on the age of the designated beneficiary.
Thus, Richard can name the unitrust for his wife with the university as the remainder beneficiary of his plan. In the end, Richard is very pleased with the news his CPA has given him. Richard can benefit both his wife and the university that helped him realize his lifetime dream of becoming a teacher.
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