How do retirement accounts factor into estate planning?

On Behalf of | Feb 21, 2023 | Estate Planning

Your retirement accounts may have a higher total value than the home where you live if you are already close to retirement age. After all, those savings will need to support your household for years after you officially and your career. Experts have long recommended aiming for a seven-figure savings account before retirement.

Retirement savings help to provide financial stability and may allow you to pursue exciting opportunities, like traveling, during your retirement. Those funds will also help pay for your medical care. Given that your retirement accounts are likely among your most sizable assets, you should consider them carefully when putting together your estate plan.

They might influence your estate planning needs

If you die before you exhaust your retirement savings completely, those funds that you have set aside will likely be some of the most valuable property in your name. They could ultimately push your estate over the threshold for estate taxes. You’ll also have to consider the taxes that the recipient(s) of any leftover funds may have to pay, including capital gains taxes.

If there is someone whom you want to inherit your retirement account, you’ll need to name them as the beneficiary for the account. You may need to consider age restrictions when choosing a beneficiary. As, for example, an IRA would be better shared with a spouse of similar age than a child still decades away from being able to access those funds penalty-free.

Some people will add a designation to have any remaining balances transferred to a specific beneficiary at the time of their death as a means of keeping those funds out of their estate. Other times, they will want to alter how certain assets are managed as they near retirement age.

Retirement savings can affect benefits

If you believe that you may eventually need Medicaid if you move into a nursing home for an extended length of time, proper planning will make it easier for you to qualify for benefits if you need them. The ways in which you choose to hold your retirement account and how much you receive from your savings each month can potentially influence your eligibility for specific benefits.

As a result of all of these considerations, identifying and addressing your most valuable property in your estate plan will be important for your security as you age and your legacy after your death.