The idea behind tax-advantaged retirement accounts like IRAs is for you to use up your retirement savings during your retirement. However, many people pass away before they spend down the entire balance of their IRAs, and that leaves the question of what their heirs need to do with the remaining retirement money.

In this installment of Industry Focus, financials sector analyst Gaby Lapera and Director of Investment Planning Dan Caplinger discuss how IRA inheritance works. As Dan and Gaby discuss in this clip, when you open an IRA, you designate your beneficiaries on a form, and those beneficiaries are the ones who have the right to inherit IRA assets after your death. Spouses have certain rights that other beneficiaries don't, but regardless, your financial institution can help you work through both setting up the inherited IRA and making sure you take money out according to the requirements that govern IRAs in inheritance situations.

A transcript follows the video.

This podcast was recorded on Jun. 6, 2016. 

Gaby Lapera: Say you have an IRA and you kick the bucket. Is it difficult to pass that onto your children or whoever you're sending your inheritance to? Does it matter which type it is, or is it about the same?

Dan Caplinger: No, it's actually easier to get IRA money down to your loved ones after you pass away than it is, in many cases, with ordinary assets. You don't need a will or a trust or anything like that in order to do it. IRAs come with what's called beneficiary designation forms. Every financial institution, when you open up an IRA, you're going to see a sheet in all those papers that you have to sign, and it's going to say, "Who do you want your IRA to go to after you pass away?" And there's going to be a bunch of choices. If you have a spouse, there's going to be a special check-the-box for the spouse, because spousal beneficiaries of an IRA have some special rights that non-spouses don't have. Specifically, if your spouse inherits your IRA, they can just take that money and put it into an account in their own name. They can treat it the same way as they treat their own IRA money that they saved themselves. 

With a non-spouse, you can't do that, so what you end up with is what's called an inherited IRA. There's some pretty complex rules about how long you can keep money in that inherited IRA, how fast you need to take it out. But in general, the mechanics of getting that money over to the person who you want to inherit that money is very simple. It's just a matter of, you fill out that form, you put their name and information on there, and then when you pass away, that heir can come in to that financial institution and say, "This person named me to inherit this IRA," and then that person will sign the forms that you signed to set it up, and they'll treat it the way they need to treat it going forward.

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