Should you make your revocable living trust the beneficiary of your IRA, 401k or retirement account

Tom: Let's go to Linda in Orlando. Linda, you're on WDBO. Go ahead.

Linda: Yes. Hi. Good morning. I have a revocable living trust and I had put my IRA beneficiaries as the revocable living trust, but I want to change that.

Tom: All right.

Linda: If I do it on the Fidelity website, do I have at the same time go back to the actual document and do that too?

Tom: Linda, when you pass away, what happens to your 401k is not going to be governed by your will or trust, it's going to be governed by how you fill out the beneficiary designation form. If you go to Fidelity and let's say you've got three kids and right now you've got the trust as a beneficiary of your 401k, if you change that to your three kids, that Fidelity form will be controlling no matter what your trust happens to say.

Linda: Okay, perfect. That's what I was looking for. [chuckles]

Tom: Linda, what I'm saying is that you can change your beneficiary with your Fidelity and that in and of itself would not require you to change your trust. Is that what you're going to do, Linda, is make your children a beneficiary of your 401k?

Linda: Right, yes.

Tom: Linda, that is a better choice because by making your children to the direct beneficiary 401k, they can roll that over into their own beneficiary IRA, and avoid paying taxes over whenever and they can pay taxes over the next 10 years, rather than having one lump sum due in the year that you pass away.

Linda: Right. That's what I figured out after. [chuckles]

Tom: Yes. Linda, that's a good strategy. We appreciate your calling. Do you have any other questions?

Linda: No, that's it. Thank you for your help today.

Tom: Okay. Naming your adult children as the beneficiary of your IRA or 401k is always a better choice. When do you name the trust, the beneficiary of your IRA or 401k? When you've got minor children, you've got spendthrift children, that would be reasons that you want everything flowing through your trust. When you've got minor kids, have spendthrift kids that are not getting their share outright.

Chris: Or addiction.

Tom: Yes, addiction issues, exactly.

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