You have a number of choices when it comes to selecting a beneficiary (or beneficiaries) for your IRA. Some are appropriate. Some are mistakes and can lead to delays and expenses in getting the funds to your desired recipients. Some may even exclude some of your desired beneficiaries. In addition,
some elections are for estate planning purposes. Let’s take a look at your options.
No Beneficiary
Not recommended. This mandates your IRA be distributed according to your will, if you have one. If you don’t, each state has “intestate” rules that divide your estate up in ways you wouldn’t ever want.
An IRA with no beneficiary must be distributed within five years. By contrast, a named beneficiary can spread the distribution out over the balance https://us-southeast-1.linodeobjects.com/precious-metals-pr/storage-options.html of their life expectancy.
Your Estate
Naming your estate as the beneficiary is the same as not naming one. The rules require a “named” beneficiary. Now your IRA goes through the probate process. This costs money, takes time and subjects your IRA to your creditors.
Why should you pay money to be represented by an attorney and have a judge in some probate court decide whom your beneficiary will be? Why should your beneficiaries have to wait around for your estate to be closed? What if your will is challenged? What if you have a big estate with estate taxes due and the IRS is questioning the valuation of your business? I have seen estates open for as long as ten years as the debate goes back and forth between your attorney and the IRS. The worst case I can think of is your IRA completely eaten up by legal fees inasmuch it may be the only liquid asset.