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Mirror, mirror, on the wall, who's the best beneficiary of them all? p2

We are fully recovered from Thanksgiving and we are ready to circle back to our Nov. 20 post about naming beneficiaries for retirement accounts. Completing that one form can make the world of difference to your heirs. Making a mistake on the form or altogether forgetting to fill it out could also make the world of difference to your heirs, but not in a good way.

In our Nov. 20 post, we talked about the importance of updating your beneficiary designations after a major life event. Marriage, divorce, adoption, the death of a loved one, a worse-than-normal family fight over the holidays -- these and other events could change what you want to happen to your money after you are gone.

Here, we have a few more pointers:

Avoid naming your estate as your beneficiary. Understand, too, that if you leave that space blank, you are naming your estate by default. Doing so will hinder most efforts to make the payout go as far as possible. There are also tax disadvantages -- estate tax will take a big bite out of the payout right up front, and that translates into a loss of income over time.

Also, if an IRA has no named beneficiary, the court would likely roll the payout into the estate. The money would not be protected from creditors. And any distributions to family members could take months while the estate winds its way through probate.

If your beneficiary is a young child or someone you don't entirely trust with money, you may want to add certain controls: Think about appointing someone or an organization to help with managing the payout. Without those controls, the money goes free and clear to your beneficiary -- perhaps your 7-year-old niece -- and your beneficiary can spend it anyway he or she wants to.

When completing the form, keep all of this in mind. If you are taking a breather from catching the sales at King of Prussia Mall, or just kicking back after a Center City office get-together, pull out your retirement account information. Check first that you have named a beneficiary and, second, that you have named the right person as beneficiary.

Source:, "5 IRA beneficiary form mistakes to avoid," Shelly K. Schwartz, accessed Nov. 20, 2014

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