Naming your estate as IRA beneficiary seldom makes sense. If you die after the required beginning date (RBD) for minimum distributions (age 70 1/2), IRA distributions can be stretched out over your hypothetical remaining life expectancy, as of the year of your death. If you die at age 80, for example, you’d have a remaining life expectancy of about 10 years.

 

That’s not bad but it may not compare to the benefit of leaving your IRA to a named beneficiary. Your 50-year-old daughter, for example, would have a 33.3-year stretchout, while your 20-year-old grandson could enjoy 62 years of tax-deferred compounding.

 

The potential loss of tax deferral is even greater, though, if you die before your RBD. In that situation, the IRA would have to be paid out to your estate by December 31 of the fifth year following your death. Therefore, leaving your IRA to your estate might shrink 62 years (or more) of tax deferral down to five years. Your loved ones may enjoy much greater wealthbuilding, tax-deferred, if you name individual beneficiaries.