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Designated Beneficiary

A Designated Beneficiary in the context of the Individual Retirement Account (IRA) industry is a person or entity chosen by the account holder to receive the assets or benefits of the account after the account holder’s death.

This is an important term because the identity of the designated beneficiary can significantly impact how the account’s assets are distributed and taxed after the account holder’s death. For example, if the beneficiary is a spouse, they might have different options for inheriting the IRA, such as rolling it over into their own IRA, compared to non-spouse beneficiaries. Additionally, required minimum distributions (RMDs) for inherited IRAs are often calculated based on the age of the designated beneficiary, which can impact the tax implications of the account.

It is crucial for IRA holders to name a designated beneficiary and keep this information updated to ensure that their wishes are carried out after their death. If no designated beneficiary is named, or if the designated beneficiary has already passed away and no contingent beneficiaries have been named, the IRA’s assets might be distributed according to the default terms of the IRA agreement, which might not align with the original account holder’s wishes.