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Ask the Expert

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How to prepare for retirement

Retirement strategies

Posted: August 15, 2008 7:21 p.m.
Updated: October 16, 2008 5:01 a.m.
 

One of the most common mistakes investors make in dealing with their IRAs is to name or change a beneficiary. In this changing world and with our fast-paced lives, many people overlook the important feature of passing on one of your most important assets. The IRA beneficiary designation form serves as an important estate planning document.

Following are some consequences that you may face without proper beneficiary designation:
n Your estate becomes the default beneficiary and the account is subject to probate.
n The IRA stretch option and the "spousal continuation" is lost.
n Distribution from the IRA is required in a lump sum or within five years.
n Taxes are usually higher when IRAs are paid to an estate instead of individuals.

Not changing beneficiaries will result in the distribution being made to unintended beneficiaries (such as a divorced spouse) because distributions will be made to the person named as beneficiary. It is important to review your portfolio, IRAs and 401(k) plans with your financial advisor periodically to avoid this problem, and to address any changes in your life that will affect your distribution.

Are you older than 59 1/2 and still working? In-service withdrawals may offer more flexibility to your retirement plans. If you want to align your retirement planning, accumulation and distribution goals before you must begin taking IRS-mandated distributions at age 70 1/2, you may want to take an "in-service withdrawal" from your 401(k) account balance and roll it to an IRA. This way you may want to consult with your financial advisor and consider rolling it into a variable annuity that can offer an income rider that can guarantee growth and lifetime income whenever you decide to begin taking income. To consider this option, ask your employer or 401(k) administrator for a copy of your 401(k) plan's Summary Plan Description to determine whether your plan permits "in-service withdrawals" for those over the age of 59 1/2.

Jim Lentini, CLU, ChFC, IAR is president of Lentini Insurance & Investment, located in Santa Clarita. His column represents his own views and not necessarily those of The Signal.

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