Avoid IRA beneficiary blunders

Earlier this year, the IRS announced new rules for retirement plans.  Now you can change your IRA beneficiary anytime, even after you've begun taking distributions.

Why is your beneficiary designation important?  It's important because whoever inherits your IRA inherits the income tax burden that goes along with it.

Is your IRA paperwork up to date?

• Have you named a beneficiary?  If your paperwork is incomplete, your intended beneficiary may not end up with your IRA.  That could speed up the income tax due on your IRA following your death.

• Are your beneficiary choices still appropriate?  Update choices that have become obsolete (due to a divorce or death, for example). 

• Have you named a "contingent" or secondary beneficiary?  This provides tax planning opportunities for your executor.  Also, if your primary beneficiary dies before you have a chance to update the paperwork, you will have your bases covered.

• Have you considered the tax implications associated with your beneficiary choice?  You might be inclined to name your spouse as your beneficiary.  However, leaving your IRA to a younger family member will generally allow the account to grow tax-deferred for a longer period of time.

  Perhaps you want to leave something to your favorite charity or church.  If that's the case, consider naming the charity as your IRA beneficiary and leaving other assets to family members.  A qualified charity doesn't pay income tax, but your heirs will eventually pay tax on an inherited IRA.