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Question:
I
have my IRA with you. I am not married but live with
someone. Can I make my partner the beneficiary?
A
BuyandHolder
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Answer:
Dear
BuyandHolder,
Yes.
You can name anyone you wish as the beneficiary of
your IRA. It need not be a spouse. It need not be
a relative. It can be a minor or an adult.
However,
I do want to point out something you should consider.
The tax law involved favors married couples and creates
problems for livetogethers. Specifically, unmarried
partners are not allowed to take advantage of the
spousal rollover of IRAs or other qualified
retirement plans.
Usually,
when a spouse dies, his or her IRA -- or other qualified
retirement plans including a 401(k) -- can be rolled
over to the surviving spouse, and without any immediate
tax liability.
The
name on the retirement account is then officially
changed and the surviving spouse is not required to
withdraw money from the account until he or she turns
70 1/2. (The advantage of this ruling is that by age
70 1/2, most people are likely to be in a lower tax
bracket than when they were younger and probably working
full or part time.)
In
your case, however, your partner would not be entitled
to this rollover tax break. In other words, if you
name your partner as your IRA beneficiary and you
die first, then she must immediately begin withdrawing
funds and paying the taxes due on these withdrawals.
The
dollar amount that must be withdrawn is not determined
by the person inheriting the IRA, nor by the original
owner of the IRA. Instead, the IRS jumps in and decides
the amount. It is based on the life expectancy of
the surviving partner.
Another
potential problem...depending upon the state in which
you and your partner live, she might also have to
pay a state inheritance tax.
My
advice: consult an attorney in your state who is knowledgeable
about estate planning for livetogethers.
And,
regardless of whom you decide should inherit your
IRA, check with us to make certain you have set up
your account correctly. You can call a BUYandHOLD
Customer Service Support Representative at (800) 646-8212
if you have any questions.
Good
luck!
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