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Planning for Distributions

The rules for distributions are complex and should all be factored in during the planning phase for retirement. There are a couple of key components to remember: there are required minimum distributions when you're 70 ½ years old, and what happens to IRA / 401(k) funds upon death.

Naming Beneficiaries

When you name a beneficiary, you do so in a little box on the paperwork. Many people don’t give this a second thought, but this document has complete control and authority over who gets what regardless of what is in your will. One of the problems: you can unintentionally disinherit your grandchildren, especially if people don't pass away in the typical order. It is critical to have copies of beneficiary designations because of the complete control given to the beneficiary.

Disinherit Uncle Sam

According to the IRS office, over 90 percent of all IRA’s are cashed in at the death of the second spouse. This triggers income and estate taxes that, depending on your state of residence, could trigger as much as 70 cents tax on every dollar. So, how do you disinherit Uncle Sam? The first thing is to name beneficiaries.

However, if 90 percent of the time these accounts are being cashed in, something is clearly wrong. This scenario triggers potential income and estate taxes. The easiest solution is for people to take the same amount of care and time in drafting their beneficiary designations as they do in drafting their will. It is important to put all the details in writing for who you want to get what and when. Brogan Financial strongly recommends an IRA Asset Will which lays out all the beneficiary details.

Your tax time bomb

Because taxes have not been paid on retirement account funds, this could be your tax time bomb. With 90 percent of IRA accounts being cashed in at the death of the second spouse, you run the risk of making the IRS one of your beneficiaries. A well-developed financial and legacy plan that includes coordination with your CPA and attorney is essential to avoid this tax.

Contact the Brogan Financial office at 865.862.6800 or at This e-mail address is being protected from spambots. You need JavaScript enabled to view it for an appointment about your retirement accounts.

Jim Brogan named the 2011 National Advisor of the Year.

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