2014 Giving Guide: Heim, Young & Associates, Inc.

What is the most important decision you must make about your IRA and company retirement account? It may be your choice of beneficiaries.

Traditional IRAs and 401ks are tax deductible, tax deferred and typically 100% taxable upon distribution. In the unfortunate event of your death, a spousal beneficiary designation is unique in that it allows the opportunity for your spouse to rollover your IRA or 401k into his/her own IRA account. With a Spousal Beneficiary election, distributions can continue to be tax deferred until age 70 ½. Other spousal beneficiary designation distribution options may include the Five Year Rule, Life Expectancy Rule, or taking a Lump Sum distribution, which will be discussed subsequently in further detail.


Subject to your spouse’s legal rights, you can name whomever you want to inherit your IRA/401k account. A Non-Spousal Beneficiary designation can include a person or persons other than your spouse, a trust, a charity or other organization. Upon your death, while a Non-Spouse beneficiary does not have the option to rollover your IRA/401k into his/her own IRA; there are other tax deferral options. The Five Year Rule allows a beneficiary to distribute the entire account by December 31st of the year containing the fifth anniversary of the account owner’s death. It is important to note that if the IRA/401k account owner is age 70 ½ or older at the time of death, then the Five Year Rule would not be an eligible option for any beneficiary. If income is not immediately needed, the Life Expectancy Rule or “Stretch” provision allows beneficiaries to pass their inheritance on from generation to generation while providing the potential to multiply the years and dollar amount paid out over time. Finally, the Lump Sum option allows a beneficiary to receive the entire amount of your IRA/401k account without penalty; however 100% of the distribution is taxable in the year it is distributed. One exception to the aforementioned taxation rule, is listing a Charity as your beneficiary. If it is your desire to donate or gift funds to a particular Charity, naming a Charity as your beneficiary is advantageous in that the monies have the ability to grow tax deferred and can then be passed on without any tax implications.


Certain deadlines and distribution rules must be followed upon the passing of an IRA/401k account owner. Dependent on the decedent’s age at the time of death, the IRS will require minimum distributions be taken out of the IRA/401k account based on a calculation that is determined by either the decedent’s or beneficiaries life expectancy tables. It is also imperative to understand that not all custodians allow for all types of distributions.


It’s important to name the proper beneficiaries to all of your accounts, even more so with taxable accounts in your estate. If a surviving spouse or other recipient is not named, you may be subjecting your heirs to burdensome legal costs and time delays. By taking the time to designate beneficiaries on your IRA/401k account and keeping them up to date, you have the ability to leave an IRA legacy to those you care about the most.