They were married for 31 years and managed to raise and educate four children through college.  He retired from his first career early due to heart disease and then began a second one as an accountant.  Years later she also retired and was ready to enjoy life with her husband, as a homemaker.  Unfortunately, he died unexpectedly while doing the job he really loved; suffering a massive heart attack literally at his desk while working with clients.

She was devastated and had the most difficult time coping with this sudden tragedy.  Luckily, they had put away some money over time but most of it was acquired through IRA’s (also called Individual Retirement Accounts) established years ago.   And their IRA’s had actually grown nicely.  One of the great things about IRA’s is that they can easily be transferred to family members without going through a timely and expensive probate process when someone dies.  Simply naming a beneficiary and contingent beneficiaries will allow the heirs in your family to legally receive the money saved when another family member passes away.

But this couple never named a beneficiary for their IRA’s.  They just assumed that each other would inherit the deceased’s money.  The reality of this costly mistake hit home.  Unless the spouse or child is named as the beneficiary, the money must go through the probate court. Thus, his IRA’s cannot simply be rolled over into hers.  The result?  Income taxes are now due on the entire amount instead of being able to defer paying them until much later.   And those taxes due now on the entire IRA, will cut dramatically into what she had hoped to receive to help provide income for her grandchildren and her own living expenses.

Investing is often confusing for baby boomers and seniors.  Money management was something that wasn’t taught in school or college.  Don’t feel like you’re the only “dummy.”

This often happens when parents forget to update their IRA beneficiaries and Wills.  Money that could now be inherited with no current taxes due is being snared in the probate process.  Parents or grandparents whose bank and IRA accounts still carrying the beneficiary designation of “per stirpes” or left to “the estate” of the deceased will cause headaches and potentially cost hundreds or thousands of dollars unnecessarily.  Big mistake!

Few parents would want their children to suffer due to the unnecessary early payment of income taxes on their hard earned savings.  Even worse, there are often cases where after a divorce, beneficiary designations are forgotten about…  when death occurs; money may actually go to the “ex” and their new spouse instead of the children of the deceased!

And the worse nightmare awaits those who do not have a Will at all.  Even if you believe that you do not have much to leave to your children, the State (not your children) will be assigned control over what you do have, unless you have a Will.  The solution; talk to you parents and grandparents about who they have named as beneficiaries on their IRA’s, annuities, and bank accounts that are transferable at death (TOD).  Ask if they have a current Will and have it reviewed by an attorney.  And for divorced or single parents, check who you’ve named as beneficiaries for your money.  It’s a simple precaution that will save your heirs major headaches.

When you need the best local financial advice or budget help available, contact My Money Track to help you get your life back on track.  Your IRA or rollover is just too important of an investment to ignore.  Local professional advisors are willing and able to help.