Funding Retirement Through Estate Planning

With so many options, plans, and people telling you where to put your money, it’s sometimes difficult to know where to place your funds to maximize them to their fullest potential. You are certainly not short on options! Between IRAs, 401(k)s, and trust accounts, it’s easy to get confused about the best place to put your money, especially when you are gearing up for retirement.

Retirement accounts, much like Traditional & Roth IRAs, are often some of the most substantial assets that people own, so it’s imperative that you consider them when mapping out your estate plan. Neglecting to incorporate these assets can lead to a variety of unintentional, yet financially debilitating, consequences.

To help clear up some of the confusion, we’ve compiled some useful information about how to maximize your estate planning efforts with your retirement accounts:

Retirement Funds Do Not Pass Through Your Will

Retirement accounts are completely separate from your Will and would not be included in distribution. In fact, your retirement account may have an entirely different beneficiary named, and the assets of that account would pass down to that designated beneficiary—despite what your Will states.

Distributions From Your Retirement Account are Subject to Income Tax

Generally, any monies you or your beneficiaries take out of your retirement accounts are subject to taxes. Moving those funds into a trust account increases the likelihood that withdrawing or using the funds will be free from heavy taxes or penalties later on. The exception being if you withdraw your funds early, in which case you will be subject to taxes.

In addition, the longer your funds sit in a retirement account, the more opportunity they will have to accrue interest and grow.

You Can Name Your Trust as a Beneficiary of Your Retirement Plan

It is common practice for retirement account owners to name a trust as their beneficiary. One benefit to this practice is that a trust provides better management of funds and more control for younger beneficiaries, who may not be educated enough or prepared to handle larger sums of money.

Some things to consider when naming a trust as your retirement plan’s beneficiary:

  • Tax rates on trust funds can range from minimal to substantial
  • Be sure that the revocable trust has clearly defined individual beneficiaries
  • Ensure that the beneficiaries meet the very strict guidelines for being an “acceptable beneficiary,” as follows:
  1. The trust has to be valid under state law
  2. The trust has to be irrevocable
  3. The beneficiaries to the trust must be easily and clearly identifiable
  4. The plan administrator must receive trust documentation by the specified date

As with every retirement and estate planning initiative, you must take your personal goals into consideration, and discuss them with an experienced estate planning attorney to ensure that your estate plan is crafted around your unique objectives. In addition, this blog only scratches the surface of what you’ll need to know and consider. That’s what we are here for!

Everyone, regardless of age or wealth, should have an estate plan. For more information on estate planning, and how to get started, contact Luis Barreto & Associates. Visit us here or give us a call at (305) 358-1771 to learn more about our estate planning services.


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Written by Luis E. Barreto

Luis E. Barreto

Luis is a probate and guardianship litigator with over 23 years of experience in the field. Determination of heirs, will contests, breaches of fiduciary duty, removal of personal representatives, guardians and trustees are just some of the types of litigation he addresses. In addition, he administers non-contested estates and guardianships.