Chapter 8 Retirement Plans as Estate Planning Devices

• Library: Estate Planning Basics (Nolo) (2024 Ed.)

CHAPTER 8 Retirement Plans as Estate Planning Devices

Individual Retirement Programs

Traditional Individual Retirement Programs

Roth IRAs

401(k) or 403(b) Plans

Pensions

Choosing Beneficiaries for Individual Retirement Programs

Retirement Plans and Taxes

Retirement plans, which may compose a big part of your savings, can function as estate planning devices. In particular, if you have an individual retirement program such as an IRA, 401(k), or profit-sharing plan, these can hold significant amounts of money if you die prematurely. Any money left in a retirement account is part of your estate. With any individual retirement program, you name one or more beneficiaries to receive any money left in the account when you die. The money goes directly to your beneficiaries and isn't subject to probate.

Before we look further into how you can use your retirement plans in estate planning, it's important to note that these devices aren't primarily intended to provide money to beneficiaries. They are designed to provide money to you, the owner, in your retirement. Because of this, federal law requires that after you reach age 70½ you must withdraw at least a certain portion of your retirement account every year or face a monetary penalty. (Roth IRAs function differently. See "Roth IRAs," below.) The withdrawal amount is recalculated every year, based on your current life expectancy and, to some extent, that of your beneficiary. So if you live to a ripe old age, there will be no or very little money left in your account when you die. Thus, for estate planning purposes, these accounts aren't fixed assets, like a house, which you can reasonably count on to retain (at least) their full present value.

RESOURCE

Information on retirement planning. When they retire, most people are entitled to payments from one or more retirement programs, such as Social Security, military benefits, private or public employee pensions, union pension plans, or individual retirement accounts. Planning for a financially comfortable retirement can be complicated. If you want to get some details, there are many books, magazines, and websites that specialize in this topic. Here are some good resources available from Nolo:

• IRAs, 401(k)s & Other Retirement Plans: Strategies for Taking Your Money Out, by Twila Slesnick and John C. Suttle

• Long-Term Care: How to Plan & Pay for It, by Joseph Matthews, and
• Social Security, Medicare & Government Pensions: Get the Most Out of Your Retirement & Medical Benefits, by Joseph Matthews.

You can also visit Nolo's website, at www.nolo.com, to learn more about planning for retirement.

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