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{ your decision Who will inherit your 403(b) or IRA account? Don’t leave it to CHANCE. Choosing beneficiaries comes down to this: How do you want your assets distributed after you’re gone? Know your options so you can make the best choice for you. Naming beneficiaries for your 403(b) and IRA retirement accounts is an important first step in your estate planning, but not all beneficiaries are treated alike. A beneficiary can be a person or persons, a trust, a charity, or your estate. Which is right for you? Without careful consideration, your decision may have unexpected tax and estate planning implications. benefit from tax deferral features associated with the retirement accounts. The trust option There may be circumstances when you may want to name a trust as your retirement account beneficiary. Naming a trust as your beneficiary is a way to control post-death distributions and restrict access for beneficiaries who might need help are quirky. If not set up properly, it can go very badly for your beneficiaries. Make sure to work with someone who has expertise with setting up trusts to ensure your wishes are met. Charity as beneficiary If you have already provided for your heirs and you have charitable inclinations, 6 The estate option Generally, naming your estate as your beneficiary by design or by default is bad estate planning. In general, it produces unfavorable distribution options and makes your retirement funds subject to probate, which can be an expensive and timeconsuming process. Because only a person can own a retirement account, your account(s) will need to be liquidated in order to pay your estate. Liquidating the account eliminates all flexibility for your heirs to take distributions from the account over their life expectancy, which means they will not Generally, naming your estate as beneficiary—by design or default—is bad estate planning. managing the money from large inherited accounts. However, there are pitfalls to a trust. There are no tax benefits to naming a trust for the exclusive purpose of managing the distribution of your retirement savings accounts. Because a trust is not a person, as with the estate option, retirement accounts need to be liquidated. Additionally, trusts naming a charity is also an option. Generally, withdrawals from pre-tax retirement accounts are subject to tax. However, an exception may apply to direct distributions to qualified charities. If you decide to name a charity, contact the charity to get the proper name to avoid confusion or problems later on. weabenefits.com
Your spouse as primary beneficiary Spousal beneficiaries are most common and have the greatest flexibility regarding distribution options. Spouses can: • Keep the 403(b) or IRA account with WEA Trust Member Benefits. Many benficiaries choose this option because it allows them to continue enjoying our low fees, the guaranteed investment, and great customer service. Spouses who choose this option have many withdrawal options. • Liquidate all or part of the account. Cashing out an IRA or 403(b) in a lump sum lets your spouse get the money all at once, though they’ll have to pay taxes on the amount withdrawn if it’s a pretax account. Some financial advisors say it’s wiser to spread out the tax burden by taking distributions over time. • Roll the account over to their own retirement plan or IRA account. Rolling it over may be advantageous if your spouse is younger than you, as your spouse may defer receiving distributions until his or her own required distribution date. Naming someone other than your spouse Although spousal beneficiaries have the most flexibility with an inherited retirement account, you may name anyone as a beneficiary of your account. A person other than your spouse may take the entire distribution (liquidating the account) or “stretch” the distributions over his or her own life expectancy. Stretching the account allows the beneficiary to maintain the tax-deferred and/or tax-free status of the account throughout their lifetime. 403(b) or IRA, your account balance may become part of your estate and will need to go through probate, which as previously mentioned, can be a lengthy and costly process. In Wisconsin, you are not required to name your spouse as a beneficiary of your 403(b) or IRA account. However, since Wisconsin is a marital property state, your spouse could claim their right to 50% of your account. Primary vs. contingent beneficiaries When designating beneficiaries for your account(s), you have the option to name primary and contingent beneficiaries. Primary beneficiaries are entitled to receive any assets in your account following your death. They will share Review your beneficiaries periodically to ensure they are still appropriate. Per stirpes example Primary Beneficiary(ies): • 50% John (brother); per stirpes • 50% Sally (sister); per stirpes John dies a few days before you. Fifty percent of your 403(b) TSA balance will go to Sally as indicated. John’s three children will share in the remaining 50%. (Without per stirpes designation, Sally would also receive John’s designated share.) equally in your account unless you specify different percentages. If a beneficiary Useful facts Contingent beneficiary example Primary Beneficiary(ies): • Spouse: 100% Contingent Beneficiary: • Son: 100% In this case, if your spouse predeceases you, your son would receive any undistributed assets in the account. predeceases you, his or her share of your account will be divided proportionately among the surviving beneficiaries unless you have indicated you wish their share distributed per stirpes. Per stirpes allows any undistributed assets of your account to pass to the natural and legally adopted children of a designated beneficiary that predeceases you, rather than be divided among the living co-beneficiaries. Your contingent beneficiaries will be entitled to receive any assets in your account only if you have no surviving primary beneficiaries (and per stirpes was not designated for your primary beneficiaries) at the time of your death. If there are no surviving primary beneficiaries, your contingent beneficiaries will share equally in your account unless you note otherwise. Review your beneficiary designations Life changes such as marriage, divorce, or death are indicators that you may need to review your beneficiary designations to make sure they are still appropriate and reflect your wishes. You may want to consult your attorney to ensure that you understand all aspects of your decision. This is for informational purposes only and not intended to be legal or tax advice. Consult your tax advisor or attorney before taking any action. • Beneficiaries named on your retirement account supercede your will. • Beneficiaries may keep the account • Only a person (age 18+)—not with us and/or may open a WEAC What happens if I do not name an estate or a trust—can own IRA and rollover the inherited a beneficiary? a retirement account. account. They can also name their If a beneficiary is not designated for your retirement account(s), such as your • Probate can be a lengthy and costly process. own beneficiaries for the inherited account. weabenefits.com 7
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