Be Sure Your IRA Beneficiaries are Designated Beneficiaries

Understanding the difference between IRA & Designated Beneficiaries

Family on BeachIRAs have beneficiaries and “designated beneficiaries,” and it is important to know the difference. If you wish your heirs to have the opportunity to take full advantage of “stretch” IRAs, and to avoid other possibly costly mistakes, be sure your heirs are designated beneficiaries. Here’s the difference and why it matters.

Basics

The beneficiary that inherits an IRA can be an individual or a legal entity such as a charity or an estate.  But a designated beneficiary must be a living person ‘with a pulse’ who is named on the beneficiary form of the IRA.

The major advantages of a designated beneficiary are:

Distributions from inherited IRAs can be stretched over a designated beneficiary’s lifetime, possibly allowing decades of tax-favored investment returns to be earned in the IRA.

The IRA passes directly to a designated beneficiary, escaping complications like probate.

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