Even though you made sure to draw up a Last Will and Testament, it’s not always the final word on the distribution of your assets. Take for example your IRA. Who gets the benefit of an IRA after you’re gone will be controlled by the beneficiary form you completed when the IRA was created.
Warning: do not designate your “estate” as the beneficiary of your IRA. This limits the distribution (and taxation) options available to your heirs. This matter was explored in a recent article in The Slott Report titled “IRAs and Wills Don’t Mix.”
While your “estate” can be the beneficiary of your IRA, and your Will thereafter determines the distribution of the retirement funds, this might not be best idea tax-wise. If your “estate” is the beneficiary of your IRA, then some unfavorable withdrawal rules apply. Instead of the IRA being withdrawn over the life expectancy of the beneficiary (typically younger than the plan owner), the funds must be withdrawn within five years or perhaps over your own remaining life expectancy.
Things can get complicated quickly—make sure you understand the beneficiary designations you have made.
Reference: The Slott Report (July 29, 2013) “IRAs and Wills Don’t Mix”