Can POA Be Used for IRA Withdrawals?

If you're in a coma, a durable POA lets someone manage your affairs.

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When you give someone power-of-attorney, you give her power over your money. You still have all your authority -- to sell your house or roll a traditional IRA over to a Roth, for instance -- but she has the same legal powers. Appointing someone as your agent or "attorney in fact" to manage your IRA has advantages, but there are risks that come with them.

Durable POA

As long as you're of sound mind and body to manage your affairs, a POA for your IRA may not be of much use. If you're incapacitated by illness or injury, your agent may be a big help, such as to arrange a rollover or withdraw money for your medical bills. This requires a durable power of attorney. In many states, a generic POA loses its validity if you're incapacitated. A durable POA lets your agent exercise authority even after that happens.

POA Requirements

Every state has its own legal requirements for drawing up a valid power of attorney. It doesn't take a lawyer -- legal-help websites in most states have POA forms you can download, fill out and sign. You have to get it notarized, and some states require witnesses as well. The company holding your IRA may have its own rules or POA forms for you to fill out. Legally, the IRA custodian shouldn't refuse to honor a valid POA, but your agent will find it easier if you jump through all the hoops.

POA Risks

Once your agent has the authority to manage your affairs, he can use it to line his own pockets. It's illegal to exploit a POA for personal gain, but it happens a lot. Agents have emptied investment accounts, sold real estate and looted bank accounts. Whoever you appoint as an agent should be completely trustworthy. One added precaution is to make it a "springing" POA, one that only takes effect if you're disabled.

Well-Written POAs

You reduce the risk of your agent abusing the POA if you only give her the powers you need her to have. If all you want is to have her manage your IRA for you, you can sign a POA that gives her authority over the account and nothing else. Some downloadable POA forms have a long list of powers you can check off or leave blank, depending on whether you want your agent to have them. If the generic form doesn't fit your needs, you can have your lawyer draw up a more precise one.