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Spokane Estate & Probate Lawyers / Blog / Estate Planning / What Happens to My Retirement Account After I Die?

What Happens to My Retirement Account After I Die?


When you set up a retirement plan such as a 401(k) or an IRA, you can designate a beneficiary who will inherit any money remaining in your account after you die. Typically, you would designate both a primary beneficiary and a contingent beneficiary. The primary beneficiary inherits the account automatically upon your death. Retirement accounts are generally considered non-probate assets, so they do not pass under the terms of your will, unless you designate your estate as the primary beneficiary (which is generally a TERRIBLE idea).

You can designate more than one primary beneficiary. Indeed, this is not uncommon when people want to divide a retirement account among multiple children. Each primary beneficiary would then receive a percentage of the account as you designate. In the event none of your primary beneficiaries outlive you, the retirement account would then pass to your contingent beneficiary.

Of course, inheriting a retirement account carries certain legal responsibilities for the beneficiary. These rules are quite complex and often difficult to understand. That is just one reason you should consult with an experienced Spokane estate planning attorney who can also advise you on matters related to retirement planning.

When Does the Beneficiary Have to Withdraw the Money?

One of the more complicated issues with inherited retirement accounts is the IRS’ “required minimum distribution” (RMD) rules. Basically, the beneficiary of an inherited retirement account must make withdrawals from–or outright empty the account–within a certain time period. These rules were changed in 2019, so different standards apply to retirement accounts for people who died in 2020 or later.

To give a simple hypothetical example, George died in 2024. He was 75 years old at the time of his death and making regular withdrawals from his IRA. (Under IRS rules, you typically must start taking RMDs from your own retirement account when you reach a certain age, which ranges between 70.5 and 75 years.) George named his wife Laura as his beneficiary.

As a spousal beneficiary, Laura can keep George’s IRA and make a “spousal rollover” – essentially converting it to her account. She would then take RMDs as required based on her own life expectancy (i.e., starting when she reaches age 72.) She can also choose to “rollover” George’s IRA into another one of her IRA accounts, assuming she has one.

But what if instead of leaving the IRA to his wife, George named his adult son Martin as the primary beneficiary? As a non-spouse designated beneficiary, Martin would follow what the IRS calls the “10-year rule.” Under this rule, Martin would have to take a RMD base on his life expectancy from George’s account each year, beginning on December 31, 2025, the year following George’s death (George would still have to take the RMD for 2024, even posthumously). These distributions would continue until Martin withdrew all of the funds in George’s retirement account, which must be completed by December 31st of the tenth year following George’s death (December 31, 2034).

Remember above where it mentions an Estate is a terrible beneficiary? Well, an estate beneficiary has just 5 years to complete the closeout of the IRA, thus accelerating the tax and requiring the probate remain open for the whole duration. Ouch!

Speak with a Probate Avoidance Lawyer Today

Ensuring you select appropriate beneficiaries for your retirement accounts is an important–but often overlooked–part of estate planning. If you need legal advice in this area, we can help. Contact Moulton Law Offices, P.S., today to schedule a free consultation. We serve clients throughout the Spokane, Kennewick, and Yakima area.



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