By Sarah Brenner, JD
Director of Retirement Education
Question:
Is it wise to designate a grandchild as primary beneficiary for IRA accounts?
Answer:
You can choose to name whomever you want as your IRA beneficiary. If you want your IRA funds to go to your grandchildren, that is your decision and there is nothing wrong with making that choice.
There are some things you will want to be aware of, though, before updating your beneficiary designation. The first is that the SECURE Act has eliminated the stretch for most non-spouse IRA beneficiaries. Your grandchildren will be subject to the 10-year rule unless they are disabled or chronically ill.
There are also some special concerns if your grandchildren are minors. If so, they should not be named directly on the beneficiary form since minors do not have legal authority to conduct business on an investment account. Instead, consider naming a Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA) account if the custodian will allow it, or a trust if it is a large IRA.
Question:
When mentioning contribution limits to IRAs, shouldn’t you also mention that earned income is an overriding factor?
Jim
Answer:
Hi Jim,
Tax season is the time when many people consider making contributions to IRAs. Your comment is a good reminder that an individual (or their spouse if married) must have earned income or taxable compensation to contribute to an IRA. This can be wages or income from self-employment. Without it, no IRA contribution is possible, and if your taxable compensation is less than the maximum contribution limit for the year, you will only be able to contribute up to the amount of taxable compensation that you (and your spouse if married) have.
If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.