Do IRAs Go Through Probate?

by | Jan 17, 2023 | Blog, Estate Planning, Probate, Probate And Estate Administration |

Avoiding the hassles and costs associated with probate is an essential part of good estate planning. There are different strategies available for sheltering your assets from probate, and an experienced California Estate Planning Attorney like Alice A. Salvo can help you find the best ones for your particular needs. A common question many ask is, “Do IRAs go through probate?” Retirement accounts have some complex rules that must be followed, and this can affect your estate planning. Let’s take a look at some issues surrounding IRAs.

Planning for Retirement

Investing for your future is wise and there are many avenues to use. The most common are employer-sponsored 401(k) plans and Traditional IRAs. Money you invest every year (there are laws setting limits on how much you can invest) is tax-deductible. The money you invest earns income and interest, according to how your particular retirement account works; this money also escapes taxation.

When it comes time to retire and begin withdrawing your retirement funds (this is also governed by law), the money you take out will be taxed – but here’s a plus: you will likely be in a lower tax bracket at retirement, meaning you pay a lower income tax rate on your retirement withdrawals than you would have while working.

Overall, investing in some sort of retirement account is a smart option for your future, and the future of your loved ones.

Retirement Accounts and Your Estate Planning

What happens to your retirement accounts when you die? If you pass away before accessing your retirement account funds, or if there are funds left in your retirement account when you die, these funds will be handled according to your instructions. They will either be transferred to beneficiaries you named on the retirement account or in your will.

Do retirement accounts pass through probate? Yes and no.

  • Generally, retirement accounts DO NOT pass through the probate process as long as you have designated beneficiaries on your account. This takes precedence over any designations made in your will for these retirement accounts.
  • Your retirement accounts DO pass through probate if there are no beneficiaries named on the account and if the plan documentation does not specifically address who would then become your beneficiary.

Attorney Alice A. Salvo can offer specific guidance about your particular retirement accounts as part of your estate planning in a confidential consultation. Retirement accounts are governed by complex laws, so be sure you get sound advice from her before making any beneficiary designations.

8 Aspects of IRA Estate Planning You Should Know

Individual Retirement Accounts (IRAs) and other retirement plans have specific language and provisions that are necessary to understand before diving in with your estate planning. Here are eight important terms you should know.

  1. IRA An IRA is an account set up at a financial institution that allows an individual to save for retirement with tax-free growth or on a tax-deferred basis.
  2. Roth IRA – With a Roth IRA, you make contributions with money that’s already been taxed. Your money can grow tax-free and you can enjoy tax-free withdrawals in retirement, so long as certain conditions are met.
  3. Beneficiary – Any individual or entity designated to receive funds from your retirement plan.
  4. Spousal Beneficiary – When your surviving spouse is the named beneficiary on your retirement account.
  5. Non-Spousal Beneficiary – When some other person besides your spouse is the named beneficiary on your retirement account. Some accounts only allow immediate family as a non-spousal beneficiary, such as your children.
  6. Required Minimum Distribution (RMD) Rules – These are federal laws that stipulate when you must begin using your retirement funds and how much can be withdrawn.
  7. 5-Year Rule – RMD that requires anyone who inherits your retirement account to empty the account by the end of the 5th year following the year of your death.
  8. 10-Year Rule – RMD that requires anyone who inherits your retirement account to empty the account by the end of the 10th year following the year of your death.

Retirement and Estate Planning Help in CA

Estate Planning Attorney Alice A. Salvo can provide wise expertise when you need help with your estate planning in California. Retirement accounts and the laws that govern them can be confusing. Alice Salvo knows how to protect them and your and other assets from probate to spare your loved ones the delays and costs. Contact her office today to schedule an estate planning consultation to get more information and assistance.



FindLaw Network