Monday, September 03, 2007

Retirement Account Beneficiaries

Here's a more serious post :) Following on from the "merger" I am updating the beneficiaries on my retirement accounts. This is known in Australia as a "binding death nomination". The U.S. term sounds a lot less gloomy! It is important to do this whenever there is a change in who you would like to receive your retirement money if you were to die before them. Otherwise your money will go to who you previously designated. The money so designated does not go through the same process as your other assets would in case of death (probate) instead it goes directly to who you specify regardless of any laws on who receives the assets of people who die without a will (intestate) or whatever else the will says. The US tax implications are complex but generally it is better to direct the money directly to who you want to receive it rather than to end up paying it to your estate (the default with no beneficiary designated). When the money is paid to an estate it loses its retirement account status - if paid to a specific beneficiary they may be able to retain it as an inherited retirement account.

In Australia there is no estate tax and following the new super legislation I am supposing that there is no income tax on a dependent receiving a death benefit, however large. There used to be income tax above the "reasonable benefit limit". But if the money was paid to the estate much more income tax might be due ("the benefit is taxed as an ordinary eligible termination payment ")? Anyway, it sounds like it is a good idea to designate a beneficiary. It's important to remember that the designation is only valid for three years, after which it must again be renewed (how annoying). At the moment my Australian designation would go to my estate as no-one qualified for the limited categories of beneficiaries allowed.

I changed my US beneficiaries online. The Australian fund (Colonial First State) needs a hard copy form signed in the presence of witnesses that will wait till we get to Australia.

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