When you think of "estate planning" you probably imagine writing a will and giving instructions about who gets the house, the car, and the “Family” jewelry. But an important asset for many people is their IRA and employer retirement plan (401K). Retirement plans are generally passed to beneficiaries directly, and are not disposed of in a will.

A traditional IRA is a retirement plan for individual investors. You can open one if the funds you contribute come from taxable earned compensation made during the year of the contribution. The advantage of IRAs is that your contributions are not typically taxed at the time you invest or annually, but only at the time of withdrawal. At that point you'll pay income tax on whatever you withdraw, but presumably at a lower rate because your income will be less at retirement. These rules mean that you invest every cent of what you put into the IRA, which can add up to a lot of money over 30 years. You must start making withdrawals after you reach age 70 2. The amount you must withdraw each year depends on your age, and is calculated so that you will use up your retirement income by the time you die.

You don't need to mention the IRA in your will or living trust, the beneficiary form is the only thing you'll need to sign. And don't worry, you can change your beneficiary at any time. It's your money after all.

Beneficiaries have the option of withdrawing money from the IRA at different times depending on several factors. With careful planning, your beneficiary may be able to spread distributions out over a period of years. There are estates planning tools which attorneys can use to assist you. Come talk with us so we can help you.