October 04, 2023
Business | Northwest Herald


Dorion-Gray: Rectifying the retirement minefield

Naming a beneficiary for your Traditional IRA or employer-sponsored retirement plan may be one of the most important financial decisions you ever make.

The beneficiary you name will receive the funds remaining in your retirement plan after you die.

One of the most common options if you are married is to designate your spouse as the primary beneficiary.

No matter the state you live in, federal law requires your surviving spouse to be the primary beneficiary in employer-sponsored retirement plans, such as 401k plans, unless your spouse signs a written waiver allowing you to name a different primary beneficiary.

In most cases, spouses name each other as the primary beneficiary to their retirement plans since those funds help maintain their lifestyle.

From a tax perspective, the major advantage to doing this is a spouse can transfer the IRA or plan into his or her name without incurring any tax consequence – further maintaining the plan’s tax deferral status.

Retirement assets passing between husband and wife at death do not create a taxable event.

Surviving spousal beneficiaries will be free to use the inherited funds as they wish after their spouse’s death.

It is also possible your spouse could remarry and then name a new spouse as the primary beneficiary rather than your children.

Many people believe making their estate or trust beneficiary of their retirement plans is sufficient to avoid any issues.

With estate as beneficiaries, you may create an expensive legal mess for the people you really want to be the beneficiaries. Don’t let the state make the decision for you.

With trusts as beneficiaries, you need to check with your estate planning attorney to ensure the language in the trust will provide your heirs with all the benefits afforded them under the law.

We highly recommend you examine all beneficiary designations on all retirement plans, as well as any other asset that carries a beneficiary, such as life insurance and annuities. This can be a minefield that can’t be rectified after you are gone.

• Please send any financial questions you wish to have answered in this column to Dorion-Gray Retirement Planning, Inc. Fax  815.455.4989 or email paula@doriongray.com. Paula Dorion-Gray, CFP® is CEO of Dorion-Gray Retirement Planning, Inc. located at 2602 IL Route 176, Crystal Lake Il 60014-2225. Securities offered through Securities America, Inc. Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Dorion-Gray is not affiliated with Securities America companies. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.