As an investment, choosing the right beneficiary for your IRA can be very lucrative for future generations. If you choose a responsible beneficiary who treats your IRA as the investment that it is, the accumulated growth and earnings could generate hundreds of thousands of dollars.
You are required by federal law to start taking money out of your IRA at age 70 1/2. You only have to take out the minimum amount (called your Required Minimum distributions or RMD) which is calculated by taking the year ending balance of your account and dividing it by your life expectancy from the government’s Uniform Lifetime Table.
The money that is left after your minimum withdrawals and any other withdrawals will go to your beneficiary upon your death. A spouse as beneficiary is the most common choice. One can also name their child or grandchild or even a non-family member as beneficiary. While this does forgo the tax deferred growth, there is still lots potential future growth that can occur.
The best way to maintain control of your IRA is often to name your trust as beneficiary. This way, the money will not be paid to an individual directly, but will be distributed according to your written instructions. The failure to fund a trust correctly however can undercut the document completely.
Finally, you can name a charity as the beneficiary of your trust. If you are considering leaving money to charity then your IRA is possibility one of the best options. This is because money from an IRA can be given to the charity free of income taxes.
Given all of these different options, it is crucial that you meet with a qualified elder law attorney before selecting your beneficiary.