Naming the right beneficiary for your IRA is often given little thought, but it can be enormously important. Recommended strategies:
Name one or more individuals. After they inherit, individuals can stretch required distributions over their life expectancy, enjoying many years of tax-deferred growth inside the account.
Name a trust. If a trust is your IRA beneficiary, individuals can be beneficiaries of the trust. Drafted by an experienced attorney, such a trust also can provide tax-deferred growth.
You should not name your estate as trust beneficiary. If that’s the case, and you die after the required beginning date (RBD) for minimum distributions, which is age 70 1/2, your heirs would have to take distributions over your remaining life expectancy.
If you die before your RBD, naming your estate as beneficiary or with no beneficiary, the inherited account would have to be paid out–and taxed–by December 31 of the fifth year following your death.
By comparison, if you’ve named your 50-year-old son as beneficiary, he could stretch distributions over 34 years while your 20-year-old granddaughter could extend tax-deferred growth for 63 years.