Beneficiary Designations: Estate and Legacy Planning Series Part 2 of 6

In the second installment of our estate and legacy planning series, we highlight the critical role of beneficiary designations in securing and managing wealth. Estate planning goes beyond wills and trusts; proper beneficiary designations on accounts like IRAs, 401(k)s, annuities, and life insurance determine where assets go upon death, often bypassing wills and trusts altogether.

⏱️Chapters & What You'll Learn:
(00:00) – Intro & Why Beneficiary Designations Matter
(00:36) – IRAs & Rules on Ownership
(02:25) – Common Mistakes: Divorce & Outdated Beneficiaries
(03:47) – Primary, Contingent & Tertiary Beneficiaries
(07:57) – Roth IRA Conversions & Secure Act 2.0 Rules
(11:30) – Annual Reviews, Charitable Strategies & Closing

I emphasize the nuances of Individual Retirement Accounts (IRAs), particularly their "individual" nature and the implications of beneficiary designations. Primary beneficiaries, usually spouses, receive unique advantages, such as the ability to roll over an IRA into their name and defer Required Minimum Distributions (RMDs) based on their age. Contingent beneficiaries, often children or grandchildren, are next in line, while tertiary beneficiaries—commonly overlooked—provide an additional layer of security to ensure assets avoid probate in unexpected situations.

We also discuss the potential pitfalls of outdated designations, such as an ex-spouse unintentionally remaining a beneficiary. Jason, Alex, and I stress the importance of regularly reviewing and updating these designations to reflect life changes, like marriages, divorces, or the addition of new family members. Naming individual beneficiaries is generally preferable to designating trusts, as it simplifies the transfer process and helps avoid complications that could lead to unintended tax consequences.

A key focus is the tax implications of inherited IRAs. Under the Secure Act 2.0, non-spousal beneficiaries must withdraw all funds from an inherited IRA within ten years, which may occur during their highest earning years, resulting in significant tax burdens. Converting traditional IRAs to Roth IRAs during the owner's lifetime can help mitigate this, ensuring heirs receive funds tax-free. However, beneficiaries cannot convert inherited IRAs, highlighting the importance of proactive planning.

We conclude with advice on leaving IRAs to charities as part of tertiary beneficiary planning. This strategy allows families to avoid taxes on inherited IRA funds while supporting philanthropic goals.

Regularly reviewing beneficiary designations is essential, as it allows adjustments without the need to amend trusts or incur additional costs. With thoughtful planning, beneficiary designations can ensure wealth is preserved and transferred efficiently, aligning with the owner's wishes and minimizing potential tax burdens.

Disclosure: Ed Slott's Elite IRA Advisor Group is a private IRA study group of professional financial advisors.

For more information about anything related to your finances, contact Bruce Hosler and the team at Hosler Wealth Management: Visit us online at https://www.hoslerwm.com/

Contact Our Team:  https://hoslerwm.com/contact-us/

Or call them in their Prescott office at [phone] or their Scottsdale office at [phone].

For more podcast episodes, visit our podcast website at https://hoslerwm.com/protectingwealthpodcast/

Limitation of Liability Disclosures:  https://www.hoslerwm.com/disclosures/

Copyright © 2022-2025 Hosler Wealth Management | All Rights Reserved. 

#ProtectingWealthPodcast  #ProtectingandPreservingWealthPodcast #HoslerWealthManagement #BruceHosler