Retirement Plans and Estate Plans: How You Can Make Them Work Together



The estate planning process is a great opportunity to take a fresh look at retirement plans and determine if any changes or updates should be made. Since retirement accounts are often the most valuable assets for many individuals, it is important to review them on a regular basis. When planning to leave retirement accounts to chosen beneficiaries, there are many things to consider.


Update Beneficiaries Regularly


Beneficiaries must be listed when you set up your retirement account. These named beneficiaries remain in place unless and until you change the designations. Many people often forget to update their beneficiaries, even after major life changes, such as marriage, divorce, the births of children, etc.


It’s important to consider who to choose as the beneficiary. The designated beneficiary of a retirement account determines the measuring life over which distributions must be taken post-death. In other words, if you name the right beneficiary, the distributions can be stretched over a longer period.


Therefore, it is important to review your retirement plans periodically.


Discuss Naming a Trust  As Contingent Beneficiary


There are advantages to beneficiaries inheriting proceeds from retirement plans through a trust rather than directly through the retirement account, such as asset protection from future potential creditors and ex-spouses.  However, there are several restrictions and regulations that must be followed and significant tax implications that may apply, particularly when the beneficiary is a spouse.  It is therefore essential to seek advice from an experienced estate planning attorney to ensure that the right kind of trust is drawn up and that it contains specific provisions addressing retirement plans.


Consider a Roth IRA


With respect to a 401(k), IRA and a few other types of individual plans, pre-tax dollars are contributed to the plan and the owner generally pays income tax later, when withdrawals are made. This is also true for beneficiaries when they make withdrawals from these inherited accounts (unlike with other inherited assets, where no income tax is due from inheritances.)


An alternative retirement plan - a Roth IRA - is treated differently by the IRS. Contributions to a Roth IRA generally are not tax-deductible, but grow tax-free.  Qualified withdrawals from the account generally are not taxed. Also, there are no required minimum distributions during the participant’s lifetime with a Roth. So, a strategy that is often considered is to convert the assets in a traditional IRA to a Roth IRA when in a lower income tax bracket. There are other benefits (as well as restrictions and penalties) regarding Roth IRAs that should be discussed in advance with a knowledgeable financial advisor. 


Notify your Beneficiaries of your Intentions


You may wish to let your beneficiaries know that they will inherit your retirement plans upon your death. This can get them thinking about possible tax implications regarding the inherited funds and allow them to plan accordingly.


Contact Loftus Law Offices, PLLC today to discuss your estate planning needs and to receive valuable guidance when making these decisions. We can be reached at 603-465-7178 and at This email address is being protected from spambots. You need JavaScript enabled to view it..