Can I put away hundreds of thousands of dollars into IRA’s only to have them inherited when I die by someone I never intended to benefit?

Yes, this absolutely possible, or worse still, the person you wanted to inherit your IRA may ultimately do so, but lose substantial tax advantages in the process!

It’s true, and did you know that these scenarios happen because people do not have properly prepared Beneficiary Designation forms on file with their IRA custodian or in their personal files, because only beneficiaries named in Beneficiary Designation forms can inherit IRA’s with full tax advantages.

Here is a short list of eightcommon mistakes that people make with regard to Beneficiary Designation forms. Are you making one of these mistakes, today?

1. Assuming that IRA’s will transfer on your death according to the your will.
2. Not updating these forms when life changes occur, such as births, divorces, etc.
3. Designating your estate as the account’s beneficiary and not a natural person.
4. Failing to name a contingent beneficiary in case the primary beneficiary dies before they can inherit.
5. Not keeping copies of Beneficiary Designation forms where survivors can easily find them.
6. Naming minor children as IRA beneficiaries.
7. Failing to get a spouse’s permission to bequeath your IRA to anyone other than your spouse.
8. Misspelling legal names and not including social security numbers of designated beneficiaries.

I have heard that I should think about converting my IRA to a Roth IRA in 2010. Why?

For people who have substantial assets, this could be a very important strategy to consider. Up to now, conversions of IRA’s have been limited by income restrictions (conversion was not allowed if you made too much money). But these restrictions will be removed in 2010. This strategy should be considered if you can pay the taxes from an account outside your IRA. If you can and go ahead and convert your IRA to a Roth IRA next year, you will be able to pay the taxes on that conversion over a two year period. Not only that, but provided you meet certain other conditions, all withdrawals from your Roth IRA in the future will be income tax free and you will not be required to make Required Minimum Withdrawals from your Roth IRA (which you would have had to start doing with your regular IRA upon reaching age 70 ½).

Legal Disclosure: Converting from a Traditional IRA to a ROTH IRA is subject to income tax. Conversions in 2010 are subject to separate rule requirements which permit the tax on conversion to be paid half in 2011 and half in 2012 (unless you inform your advisor and elect not to have this special rule apply which could cause all tax to be payable in 2010). Tax rates and/or tax brackets may change in the future which may cause you to lose favorable tax treatment on your distributions and/or conversions. Additional tax consequences may result from using converted funds to satisfy tax liabilities. Be sure you understand the tax consequences before you initiate a distribution or conversion. Consult a tax advisor regarding your individual tax situation before making a rollover, conversion or distribution.

The rules surrounding IRA’s and other qualified plans are complicated and errors may not necessarily be able to be corrected and valuable tax advantages permanently lost. In conncection with 401-k plans, please note that you may lose your chance for favorable tax treatment on a lump sum distribution from your current 401-k plan balance if you make rollovers to a qualified plan account that consist of assets that are not from another qualified plan. Additional tax consequences and age limitations may affect your ability to withdraw or roll over funds. The plan document governing your 401-k plan and current tax laws and regulations will govern in case of a discrepancy. Be sure you understand the tax consequences and your 401-k plan’s rules for distributions before you initiate a distribution. Consult your tax advisor regarding tax treatment before making a rollover, contribution or distribution.