Considering Your 401k, IRA, and Other Investments In Estate Planning

Estate planning is not the most fun thing to put time into but it is very important to do. Estate planning is all about dividing all the things you own after you die, but this is about more than just your home. Your 401k, IRA and other investments can also play a role in your estate planning, so how does this work?

What Is Estate Planning?

In fact, estate planning is about how you’re going to divide all the things you own after you die, but it does encompass a lot more than that in fact. It’s also about how you’re going to provide for the people that you leave behind and find caregivers for minors that you could possibly leave behind. Obviously you also want to minimize the costs for legal fees and taxes in the process as you want to leave as much as possible for the people you leave behind. So now we’ll look at what your 401k does in estate planning.

Your IRA In Estate Planning

It is possible to include your IRA in estate planning and spousal beneficiaries can inherit and manage the account as if it was their own account. This is not possible for non-spousal beneficiaries but there are a few other options. You can stretch the account and continue to let it grow tax-deferred. Within 10 years of the death, the beneficiary has to take distributions out of the account and, they do owe taxes at the tax rate for each distribution. The rules when it comes to leaving for a non-spousal beneficiary an IRA to a non-spousal beneficiary can be rather complicated so it is important to work with someone who knows a lot about these rules. Having a good financial advisor is also very handy and you should work together closely with the person that will be receiving the IRA so they are aware of their rights and what they can do. A beneficiary also has the option to disclaim the entire inheritance in which case it will be passed on to the next eligible beneficiary. One thing that is not possible for the beneficiary is combining two IRA accounts, so be aware of that.

Therefore it’s definitely easier to leave your IRA to a spouse than to anyone else, but anything is possible. One thing that is for sure is that you shouldn’t forget about including your IRA in your estate planning.

Your 401K In Estate Planning

When you are giving a 401k to a beneficiary it depends on the kind of plan what is allowed. Since 2007 it is allowed for beneficiaries, spousal or non-spousal, to directly pour all the funds from the 401k into an inherited IRA account. 

For spouses over 70, it is required that you should already be taking the minimum amount of distributions out of the list, but you could also pour the money in your own IRA. You could also take the money out of the original 401k.

If your spouse is under 70 then you could also pour the money into your own IRA and then you don’t have to start taking out money yet if you’re still under 70. 

If the spouse is under 59 then you can leave the money in the 401k and continue to let it grow until you are required to take out the required distribution of the 401k.

The same rules go for a non-spousal beneficiary if you are over 70 and if you are not than the beneficiary might have to take out all the money within 5 years or take out money each year for as long as the beneficiary wants, this depends on the plan.

The rules are complex, so it is important to work together closely with someone who understands these well when you’re doing your estate planning. The rules I showed you here is only a global overview and there are a lot of exceptions and other options that you might make use of. This only gives an idea of how the estate planning of a 401k or IRA might work.

Other Investments

If you were to have any other kinds of investments that you want to include in your estate planning, which you want to do, then you should consult with a financial advisor. The rules differ greatly depending on the kind of investment, the beneficiary and who you are. A financial advisor knows all the ins and outs and can give you fitting advice. Your financial advisor can work closely with your attorney to come up with an optimal plan that distributes your assets in accordance with your wishes. 

So, if you’re working on your estate planning then you should never forget to include your 401k, IRA or other investments. If you are planning to include this it might be the smartest move to work with a financial advisor who can show you all the ins and outs for your personal situation. That way you can create the most beneficial plan.

About the AuthorRoxane Kaye, has been practicing law since 2002. She is admitted to practice law in Michigan state courts and before the Federal Bankruptcy Court of Eastern Michigan, Southern Division, as well as the Federal District Court of the Eastern District of Michigan. Roxane covers cities such as Burton, MI, Flint, MI, Fenton, MI, Beecher, MI, Lapeer, MI, Waterford, MI, Auburn Hills, MI, Pontiac, MI, Howell, MI, Owosso, MI, Wixom, MI, Rochester, MI, Rochester Hills, MI, Novi, MI, and South Lyon, MI.

You may contact Roxane below:

Roxane M. Kaye Kaye Law Office, PLLC

8161 S Saginaw St

Grand Blanc, MI 48439




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