IRA Beneficiary Frequently Asked Questions

 

What is a beneficiary?

A beneficiary is a person or entity who receives the assets from your accounts in the event of your death.

Why is it important to name a beneficiary?

Making beneficiary designations is a necessary part of estate planning for you and your loved ones. Although they are not required, neglecting to name a specific person or entering “Estate” as your beneficiary could result in your assets passing through the probate process. Once your assets go through probate, they have to be distributed either immediately or within five years, leaving your heirs without the ability to stretch the length of time for withdrawals. Furthermore, if no beneficiary is named, the estate may be forced to immediately pay income tax on the funds, often at an unfavorable tax rate.

What if I have a Last Will & Testament or a Trust?

Individuals named as beneficiaries on your IRA will supersede heirs named in your will or trust.

How do beneficiaries work?

For Delta Community’s Individual Retirement Accounts (IRAs), Health Savings Accounts (HSAs) or Coverdell Educational Savings Accounts (Coverdell ESAs) there are two types of beneficiaries: primary and contingent.

  • Primary beneficiaries are the individuals or entities that you have designated to receive your funds at the time of your death.
  • Contingent beneficiaries will inherit your assets in the event that there are no surviving primary beneficiaries at the time of your death.

What are some common mistakes made regarding beneficiaries?

Here are a few of the mistakes that we see made most frequently with IRA beneficiaries.

  • Not keeping beneficiary designations up-to-date
  • Not naming any beneficiaries
  • Not establishing financial controls for a child beneficiary
  • Forgetting to name a guardian for a child beneficiary

Why should I name both primary and contingent beneficiaries?

If your primary beneficiaries pass before you and there are no named contingent beneficiaries, your assets will be passed to your estate with the proper legal documentation. This means that the assets could be subject to the probate laws of your state. The probate process is often costly and time consuming for your estate and loved ones.

In addition, if you have named a spouse as your primary beneficiary and both of you pass away at the same time, having contingent beneficiaries on your IRA can ensure your intended heirs receive the funds.

What is the difference between per capita and per stirpes for beneficiaries?

A per capita beneficiary designation who dies before the IRA owner no longer has rights to the assets and neither does his/her descendants. That beneficiary’s portion of the assets will be redistributed among the remaining primary beneficiaries. In the same scenario, a per stirpes beneficiary designation would distribute the deceased beneficiary’s portion of the assets amongst their heirs and any remaining beneficiaries would receive the same amount that they would if they had all survived beyond the passing of the IRA owner.

Delta Community’s beneficiary designations are per capita, not per stirpes.

If you have an account with Delta Community Retirement & Investment Services, contact your Financial Advisor for the most accurate information regarding your beneficiary designations.

Who can I assign to be my beneficiary?

A beneficiary can be an individual, an entity (such as a charitable organization) or a trust.

What if I name a child as beneficiary?

You may name a child of any age as your beneficiary; however, if you are concerned that they may not be prepared to manage the assets, additional provisions should be made. This could include trust structures or naming a guardian over the child. If this is your situation you should consult an estate planning specialist.

Does my spouse have to give consent to my beneficiary changes?

If you are married and your spouse is not named as your sole primary beneficiary, spousal consent is required in the following states of residence, which are community property states: Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas and Washington. Wisconsin’s property act is also based on key community property principles. Regardless of your state of residence, we recommend getting spousal consent if your spouse is not your sole primary beneficiary.

How does my beneficiary designation impact the options they may have upon my death?

Who or what you designate as your beneficiary can have an impact on what selections your heir(s) may have. For example, if a surviving spouse is your only primary beneficiary, he or she may have options that are not available to non-spouse beneficiaries. In addition, please keep in mind that naming or allowing your estate to become your default beneficiary could have drawbacks. These disadvantages could include a delayed distribution of your assets, high income taxes and greater settlement costs. Also, remember that your named beneficiary supersedes any other instructions, such as trust accounts and wills.

When should I update beneficiaries?

You can update your beneficiaries at any time. Life events, such as a marriage, death, divorce, birth or adoption should trigger a review of your beneficiary information. An annual beneficiary review will ensure that your designations are current. Leaving outdated beneficiaries on your accounts could result in unintended heirs and/or adverse tax consequences. Be aware that beneficiaries named on your IRA supersede those named in your will. You do not need your beneficiaries’ consent to remove or change them.

What information is required to name or update a beneficiary on my IRA?

We recommend you include your beneficiary’s name, address, date of birth, social security number, your relationship to them and what percentage of the assets you would like them to receive. If you are naming a non-person entity, please include the Tax ID Number.

Where can I find the form to update my IRA, HSA, or ESA beneficiary?

Choose from the list of account types below for the corresponding beneficiary form.

  • IRA
  • HSA
  • ESA
  • If you have an inherited IRA please call 404-677-4600 to speak with an IRA Specialist for additional information.

How can I return a beneficiary designation form to Delta Community?

  • Mail to:
    Attn: IRA Department
    1025 Virginia Ave.
    Atlanta GA 30354
  • Fax: 404-677-4964
  • For your convenience, you can also scan and attach it to a secure email through Delta Community’s Online Banking message system.