Can IRA Beneficiaries Be Named After Death?

Estate planning professionals recommend naming a beneficiary before death.

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You cannot name an IRA beneficiary after your death. While you can leave the IRA assets to someone in your will, trust or other estate planning vehicle, this route doesn't carry the same estate planning advantages as simply naming an IRA beneficiary during life. Failure to name a beneficiary may subject the IRA assets to probate, creditors and other difficulties.

Individual Retirement Account

An individual retirement account is a place to save money for retirement. Placing a portion of wages in an IRA carries tax advantages, since the taxpayer can generally deduct IRA contributions of up to $5,000 when calculating federal income tax. However, the owner will face tax penalties for withdrawing money from the IRA before he hits age 59 1/2, and he will have to pay taxes on the money when he reaches retirement age. The IRA offers the advantage of allowing someone to grow savings while deferring tax payment.

IRA Beneficiaries

Since an IRA owner will theoretically use the money in the IRA himself during retirement, the law does not require him to choose a beneficiary for the IRA. However, what if the IRA owner dies before or during retirement, when there is still money in the account? To plan for this possibility, the IRA owner can fill out a Beneficiary Designation Form, naming a beneficiary to receive the remainder of his IRA in the event of his death. Estate planning professionals generally advise the IRA owner to name both a primary beneficiary and a contingent beneficiary, who will receive the IRA if something happens to the primary beneficiary.

Naming After Death

Because the IRA will theoretically not need a beneficiary until after the owner dies, an IRA owner may think that he can simply name, or change, the beneficiary of his IRA in his will. But a will does not trump a Beneficiary Designation Form, or the rules of the financial institution offering the IRA. If an IRA owner waits to name the IRA beneficiary after his death via a will, chances are that default rules will result in the IRA being liquidated before becoming part of the deceased's estate, to pass by his will or by the state's order of inheritance.

Estate Disadvantages

Allowing an IRA to become part of the deceased's estate can carry significant disadvantages. As part of the estate, the IRA's assets will become probate assets, subject to the time and expense of the probate process. As part of the deceased's estate, the IRA will be open to claims by the deceased's creditors, who may devour the IRA's assets before they can go to his heirs. Therefore, estate planners advise choosing both primary and contingent beneficiaries for your IRA during your lifetime, so that the IRA will not become part of your estate after your death.