Said Goldberg, “If a surviving spouse is not the beneficiary, the plan will be subject to estate tax and the beneficiary will generally be required to withdraw the plan funds within 10 years.”
Health savings accounts (HSAs) are becoming more popular as long-term savings vehicles due to their triple-tax advantage, Murray added, but are inefficient for passing wealth to non-spouse beneficiaries.
And sometimes with beneficiaries, clients defeat their own deepest intentions.
“A client with three children will often default to listing all three children as equal beneficiaries on each one of her accounts because this looks logical, neat and fair,” Murray said. But factors to consider in this scenario, she added, include beneficiaries’ current and future tax rates and the mandatory withdrawal rates of pre-tax and taxable retirement accounts.
“If there’s income disparity between those beneficiaries,” she said, “we have an opportunity to think more strategically about who to list as a beneficiary on which type of account, while still being fair.”