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Retirement and Estate Planning Should be Considered Together

We all know the adage, “in this world, nothing is certain except death and taxes.” There are many considerations to take into account when you are putting together your estate plan. You want to create a smooth transition for your heirs and leave your estate to them with the least amount of tax liability.

Most people, when creating an estate plan, consider guardianship issues for their children and wrestle with real estate implications. However, retirement accounts can have huge implications on your surviving family if not properly handled prior to your death.


Every retirement account requires a beneficiary. Typically, a spouse is an obvious choice but you can designate anyone you desire, within limits, including a charity or other organization. Whom you have named as your beneficiary (or beneficiaries) takes precedent over the provisions you have in your will or trust.

For example, if you designate your spouse as your beneficiary on your 401k or life insurance policy and you later divorce, that spouse will still collect the amounts in that plan upon your death unless you change the designation during your lifetime. Other life events that may cause you to reconsider your designated beneficiary include: marriage, birth of a child or grandchild or death of a family member.

Income Taxes

IRAs, 401k plans and other retirement accounts are all considered assets and will be a part of your taxable estate at your death. In Massachusetts, if the value of your entire estate is less than $1 million, your heirs will not have to pay an inheritance tax.

If, however, you pay into any type of tax-deferred retirement plan during your life, you will still need to pay income taxes. Because income taxes were deferred as you funded your retirement accounts, those taxes are paid as you or your beneficiaries make withdrawals. Uncle Sam is patient, but he eventually collects his due.

As with everything in life, there are exceptions. If your spouse is your primary beneficiary, he or she will have the option to “rollover” the amounts obtained at your death into his or her own IRA, thereby delaying the income tax payments until the surviving spouse attains the age of 70.5. If a young child is the beneficiary, there is also an option to stretch the payouts from the account over the life expectancy of the child.

There are pros and cons to naming your spouse, a child or grandchild or a charity as your beneficiary. Seek the assistance of an experienced and qualified estate planning attorney to help you make the best choices you can, not only for yourself but for your family.