Life can be unpredictable. When it comes to preparing for your future, one can never be too careful. If you are building a solid nest egg using a self-directed IRA retirement fund, it would be a shame to see your hard-earned money go to waste.

Preparing for the future can mean discussing some unpleasant, yet inevitable events; you want to be sure your SDIRA ends up in the best hands should anything happen. In the event of an account holder’s passing, a primary beneficiary should be put in place to inherit the assets.

As set up your SDIRA with the help of your IRA custodian, there are many compelling reasons to choosing a beneficiary.

Why Have a Beneficiary?

In the event of your death, your IRA will pass to your primary beneficiary so long as you have elected one. When your SDIRA switches hands, it stretches the lifespan of your trust assets, including real estate property, precious metals, or unpaid private loans. As the life of the account lives on, your beneficiary experiences minimum tax impact. From that point, your account assets can be distributed based on your personal wishes avoiding expenses.

A will alone cannot determine your IRA beneficiary. By designating a successor, you determine who your IRA will care for following your departure. If you are above the age of 70 ½, you are required to take out required minimum distributions, or RMDs. If an unfortunate event should occur, your IRA will pass to the beneficiary, ultimately extending the life of your assets. Without a primary beneficiary, however, your retirement account will pass to your estate resulting in unwanted taxes. It’s a good idea to perform your due diligence and select a candidate to avoid any hardship.

Benefits of a Beneficiary

Naming an SDIRA beneficiary has advantages. Passing your account on stretches the lifespan of your trust assets allowing for more growth and a bigger payout. Additionally, based on your choice, you can be sure that your assets will be distributed according to your wishes. You can choose to pass your directed IRA investment to several individuals, but it’s important to work with both an attorney and tax advisory to select the best candidate.

You can choose a spouse, children, grandchildren, a trust or a combination. The fund can be spread out over generations, making the transition of your passing much easier on the loved ones left behind. The assets and distributions can be made available for a longer period and taking the bare minimum can increase the life of your SDIRA. As you consider your benefactor, any investment choices should be discussed with your IRA custodian and attorney, especially if you want the most out of your retirement fund.

Naming a Contingent Beneficiary

While it is important to name a primary benefactor in the case of your passing, it’s also a good idea to name a contingent beneficiary. In the unfortunate event that your primary choice should pass before you, there is no default for your IRA. The fund will pass to your estate along with unfavorable taxes. Fortunately, it’s possible for you to name multiple beneficiaries to avoid any unwanted tax pitfalls. It would be wise to name both a primary and contingent beneficiary to be certain your SDIRA is distributed to your wishes.

Why Choose Your Spouse or Children?

Choosing your spouse can have its benefits. He or she can treat your IRA like their own in a spousal rollover. Unlike other beneficiaries, they have automatic flexibility when inheriting your SDIRA. They are not required to take an RMD, based on age, and they could spread out the distribution over time. This preserves tax benefits and allows the account to grow, ensuring a comfortable livelihood following an unfortunate event. An additional pro to passing account holder status to a spouse involves the next generation. Your spouse can designate your children as the next primary beneficiaries, keeping your assets alive for years to come.

Unfortunately, there are some cons to assigning your spouse as a beneficiary. He or she could choose not to use the benefits for your children. In the case of multiple marriages, there may be issues with any children from previous marriages. Additionally, following your passing, your spouse may not follow your plan for fund distributions.

If you should choose your children or grandchildren as beneficiaries, depending on their age, they may need a guardian to oversee their funds. In the case of children, you must name the oldest the beneficiary, or name each. RMD is then either assigned to the eldest, or each individual child’s account. Before making any investment choices, it’s important to consider all options before finalizing any paperwork.

Why Choose a Trust Fund?

Choosing a living trust as a primary or contingent beneficiary can assure that your wishes are followed. The trust must comply with any guidelines that you have set up for your assets. As a bipartisan account holder, choosing a living trust provides a legal structure, ensuring that all your assets are divided according to your design. They will divide your IRA to your living relatives, charities, or keep it growing following your management. In addition, trusts provide extra protection for your fund, including against bankruptcy. While there are many positives to choosing a living trust, it can be very expensive. Be sure to perform your due diligence and select the best option for you and your loved ones.

A Bright Future for Your IRA

Planning for retirement and beyond requires us to face our mortality. With any investment, whether in assets, your IRA, or your future, the key to a comfortable livelihood is being prepared. As life throws curve balls, it’s important to remain on top, even if we are taken out of the game. Be sure to choose a path that will benefit not only yourself, but future generations as well.