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What to consider when choosing an IRA beneficiary

Anyone in New York or any other state who has an IRA will ideally name a beneficiary to that account. This is because failing to do so means that it goes into a person's estate when he or she dies. That may increase the potential tax bill that the estate has to pay. In addition to naming a primary beneficiary, it may be necessary to name alternate beneficiaries. Doing so can be helpful in the event that the primary beneficiary dies.

Deciding who should be the primary beneficiary depends on a variety of factors, and there isn't necessarily one best or right choice. Those who are married may want to strongly consider leaving an IRA to their spouses. Doing so can extend the period of time over which distributions can be made, which can reduce the tax burden on the beneficiary.

Of course, it is possible to leave money to another family member, friend or charity. In some cases, IRA account holders will name a spouse as the primary beneficiary and a child as a contingent beneficiary. This allows the spouse to decide whether to keep it or pass it along to a son or daughter. For those who aren't concerned with minimizing taxes, putting an IRA into a trust can be ideal in terms of controlling how they are used.

Thinking carefully about how to handle an IRA after passing on may help to minimize inheritance tax that future generations may have to pay. Understanding what a person wants to do with the money can also help guide how an overall plan is structured. For instance, a person who wants to give to a good cause may decide to name a charity as a beneficiary instead of a spouse, child or close family friend.

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