In the News: How to Protect Inherited Retirement Assets

When planning for retirement, an individual may face the dilemma of deciding what to do if they have leftover retirement assets when they die. Many designate a beneficiary, like a child or a grandchild, to inherit the retirement account. During the beneficiary's lifetime, the assets are able to grow significantly; but sometimes, young beneficiaries withdraw funds at an early age, which can be a crippling decision. 

 

In the article "How to Protect Inherited Retirement Assets" published by ThinkAdvisor, Founder John Goralka of the Goralka Law Firm, explains the consequences of withdrawing funds too early. "Once it comes out, instead of a stretch-out, it's kind of like a blowout; it's like a flat tire that you can't fix because once the funds are pulled out of that qualified account, you really can't put it back," he says. By naming a retirement trust as a designated beneficiary, assets are protected from beneficiaries until they are old enough to properly decide when to withdraw from the fund. 

 

However, early withdrawal is not the only concern regarding retirement accounts. In fact, there are many other factors that jeopardize these assets, such as bankruptcy and divorce. One section of the Bankruptcy Code stipulates that inherited assets are not considered retirement funds. Moreover, retirement assets are highly desired in divorce settlements because a spouse can take them tax-free. In order to protect retirement assets, Mr. Goralka encourages communication between estate planning attorneys and clients, and making sure that beneficiary designations are properly made. He adds, "It sounds silly, but often these beneficiary designations, because they're so simple, they're overlooked."