This week I’m sharing with you 5 beneficiary mistakes to avoid. If you’re like most people, you probably set up your beneficiaries on your IRA and 401k accounts 2 decades ago, and you haven’t revisited them since. So this week, I’m sharing with you the mistakes that I see people make most often and how you can avoid those same mistakes.
Today, I’m talking about beneficiary mistake #4 - not understanding the beneficiary pathway. This is probably the least understood mistake that I’m covering this week, so I’m going to try to explain this the best way I can.
Let’s say that you have worked hard and saved a lot over the years, and you now have $1 million dollars in your IRA account. You have 4 children and 13 grandchildren. You have named your 4 children primary beneficiaries, each with a 25% share. But let's say one of your children dies.
Should their 25% share get distributed to their children, or should your 3 remaining children receive equal ⅓ shares, effectively locking out the children of your deceased child from receiving any share of your IRA.
What I am talking about here is the difference between per stirpes and per capita beneficiary designations on your accounts, and if you haven’t taken the time to specify which you prefer - assets transfer to remaining beneficiaries or the heirs of the deceased beneficiary, your assets could transfer in a way that’s different than your actual intentions when you die.
So take the time to review your beneficiaries and determine which pathway you want your beneficiary designations to take - per stirpes or per capita. The good news is that you don’t have to understand how to do all of this yourself. Your financial advisor and especially your estate planning attorney can help you set up your beneficiaries in a way that’s consistent with the ideal pathway of how you want your assets to transfer.
That’s it for today. Thanks for listening. My name is Ashley Micciche and this is the One Minute Retirement Tip.
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