Lynn O'Shaughnessy

People rarely worry about their Individual Retirement Accounts, but perhaps they should. IRAs may seem as threatening as a golden retriever pup, but these accounts have claws and sharp incisors and they'll maul your nest egg if you don't play by their house rules.

In my column last week, I explained why inheriting an IRA can be a financial godsend. If an IRA is stretched for a second or even a third generation, it can often grow three or four times its original size. But many IRAs never last that long because of various booby traps that lie in their path.

Here are a few of the ways to make sure that you or somebody else never sabotages your IRAs:

- Double-check your beneficiaries.

Don't be one of the poor souls who leave their IRAs to the wrong person. You don't want to bequeath your hard-earned money to your ex-spouse, whom you can't even think about without gritting your teeth. You also would never want to intentionally stiff one of your kids or perhaps a grandchild.

Yet it's easy for this to happen. When you establish an IRA, you're supposed to fill out a beneficiary form. But once that document is signed, many people never think about it again. You need to revisit these forms, however, if there is a birth, death, marriage or divorce in the family.

One reason why these beneficiary forms aren't kept current is because people commonly assume that their wills direct who receives their IRAs. But that's a wrong assumption.

If your will says that your present spouse will inherit your IRA, for example, but your IRA beneficiary form still lists your ex-spouse, it's the ex who will strike gold.

If you want to avoid tragic mistakes like that, put this on the new week's to-do list: Obtain your IRA beneficiary forms. Call your financial institution and get copies or simply fill out new forms. When contacting your bank or brokerage firm, you may even discover that the paperwork has vanished. With so many mergers among financial institutions, missing IRA documents are a more common phenomenon than you might imagine. Keep copies of the beneficiary forms in your estate-planning files.

- Aim for the longest stretch.

An inherited IRA's growth can be explosive if a beneficiary only withdraws the minimum amount that's required by the Internal Revenue Service each year.

If you want to capture the longest stretch, you should understand how an IRA can be divided. One way to achieve the maximum stretch is to make sure an IRA gets carved up either before or after the owner's death. Loved ones who inherit an IRA have until Dec. 31 of the year following the death to split an IRA among them.


Lynn O'Shaughnessy

Lynn O'Shaughnessy is the author of Retirement Bible.

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