Comments on: Why Naming Beneficiaries Is Important

By: JoeTaxpayer

JoeTaxpayer — Sat, 01 Aug 2009 17:41:34 +0000

As I understand the TSP (Thrift Savings Plan), it’s treated similar to an IRA or 401(k) in that withdrawals are taxed as ordinary income.
Is the account still in the TSP? I’d suggest first doing a direct transfer to an IRA in your name, and then deciding how much to withdraw each year. As tax will be due, you want to withdraw limited amounts depending on your tax bracket.
You may gift each son $13K/yr with no gift tax due or any reporting.
Why do you feel it’s theirs? Do you not need these funds? At 61 you have a long life ahead of you and can make good use of this for the long term, but of course that’s your decision.

By: lynn grant

lynn grant — Sat, 01 Aug 2009 14:52:17 +0000

I am the benificiary of my youngest son’s father’s TSP fund. My x-husband. There are 4 other son’s. How do I give them their fair share without tax consequences. I would like to “gift” tax free money to them would this be OK? Is it legal in a retirement und to do ths. I am 61 yrs. old the boys are in their 30′s. My youngest is 21 and it is his father who died.

By: eric

eric — Wed, 15 Jul 2009 00:15:57 +0000

Nice post! Time to go review this.

By: DDFD at DivorcedDadFrugalDad

DDFD at DivorcedDadFrugalDad — Mon, 13 Jul 2009 03:11:14 +0000

Great post– super important to do this. No questions as to your wishes and streamlines the process of transfer to your beneficiaries.

By: Patrick

Patrick — Mon, 13 Jul 2009 00:08:32 +0000

I originally set up my beneficiaries to my father, who passed away not too long ago. Making sure to update that to my soon to be wife is really important. Thanks for the reminder, as things like this often get overlooked and can really become a big mess.

By: Lord

Lord — Fri, 10 Jul 2009 22:21:27 +0000

You are right about per capita in a will. It is if neither is specified in a beneficiary designation that problems arise. Many beneficiary forms will only use alternate beneficiaries if all primary beneficiaries are deceased, and this is what can lead to descendants being cut out by the decease of the their primary beneficiary. This is covered here, http://www.nysscpa.org/cpajournal/2006/906/essentials/p60.htm

By: jillianlou

jillianlou — Fri, 10 Jul 2009 19:45:03 +0000

Do you have a good will? BC as a single person your assets could be in limbo depending on your state. At the very least you should name your parents or some other close relative as the beneficiary of a small life insurance policy or bank account to be able to pay your burial expenses in the event of an untimely death.

By: jillianlou

jillianlou — Fri, 10 Jul 2009 15:01:49 +0000

That is actually not true. Per capita means if you have two beneficiaries and one predeceases you, the money is split evenly between the surviving beneficiary and the beneficiaries of the deceased, potentially leading the surviving beneficiary to get less than you intended. In per stirpes, the beneficiaries of the deceased split the deceased’s share, while your original surviving beneficiary gets the same share s/he would have originally received.

Check out more at http://www.deathandtaxesblog.com/2007/04/per_stirpes_vs_per_capita_1.html

By: JoeTaxpayer

JoeTaxpayer — Fri, 10 Jul 2009 14:59:41 +0000

Related directly to this, I wrote an article “On My Death, Please Take a Breath” http://www.joetaxpayer.com/archives/139
I tell how a woman did everything ‘right’ beneficiary on her IRA which was all her money. She died and brother withdrew it all, getting hit with a huge tax bill. He has no income except SS disability, and would have been able to withdraw $9350 (the std deduction plus exemption) at zero tax rate, another $8350 at only 10%.
I was sorry that he got me after the 60 days had passed, too late to do anything.
When discussing beneficiaries, I tell people to include proper directions for withdrawals. This guy had no understanding an no one he could go to for guidance. A real shame.
Joe

By: Robert D Flach

Robert D Flach — Fri, 10 Jul 2009 14:36:49 +0000

Jeff-

As a somewhat related point – also be sure to periodically review and, if situations or circumstances change revise, the executor/executrix named in your will.

TWTP

By: Jeff Rose

Jeff Rose — Fri, 10 Jul 2009 03:04:46 +0000

@ Flexo

You could leave it for your cat, or…….

Just fill the the following: Jeff Rose. I’ll forward you the rest of my info for your convenience

By: Flexo

Flexo — Fri, 10 Jul 2009 02:26:31 +0000

I generally skip setting up a beneficiary. As a single guy, I suppose I could leave my assets to my cat, but I don’t think he will care nor do I think he’ll outlive me anyway.

By: Lord

Lord — Fri, 10 Jul 2009 00:19:19 +0000

You will generally want to specify beneficiaries per capita or per stirpes. Per capita goes to them and them only, while per stirpes goes to their heirs and assigns. A beneficiary that predeceases gets nothing under per capita with their share being divided between the remaining beneficiaries. A beneficiary that predeceases still gets a share under per stirpes that is divided amongst their heirs.

By: hustler

hustler — Thu, 09 Jul 2009 22:30:40 +0000

Thanks. I checked around and did not have a beneficiary designated on my retirement account or my online savings account. I have since added my husband should anything happen.

By: Jeff Rose

Jeff Rose — Thu, 09 Jul 2009 20:52:33 +0000

@ Walt

In that particular case, you are absolutely right. Typically though, you want to name beneficiaries, especially if they are not spousal beneficiaries for stretch options.

For annuities that are non-qualified (not in retirement account), you can also elect to get a five year payout option which can help with the tax ramifications. If no beneficiary is made, then it must be paid out immediately as accordance to the will. The amount that is taxable is only the amount that is above what was paid into the contract (premiums). In the case above, there was a pretty hefty tax liability that the elder son incurred.