My May 12 post explained why IRA beneficiary designation forms are so important: They're the equivalent of a will for your IRAs.
I suggested that your safe deposit box is a good place to keep these forms. But I didn't make it clear that what you should keep are copies. The original forms must be filed with the IRA custodian -- i.e., the bank, brokerage, mutual fund company or other financial institution that holds the account.
Barry C. Picker, a Brooklyn NY tax accountant and IRA expert, points out that a hasty reading of my earlier post might lead some readers to the erroneous conclusion that it's okay to fill out a beneficiary form, sign it, and put it in your safe deposit box without ever submitting it to the custodian.
That could be disastrous!
"Say you filled out a form naming your son and sent it to the custodian. Now you change your mind and create a document naming your daughter, sign it, put it in your safe deposit box, but never submit it to the custodian. I don't think the daughter will get it," says Picker. "Definitely not without a fight from the son. I think what's on file with the custodian will trump it."
Just to make sure there are no misunderstandings about something so important, here's a step-by-step guide:
1. Ask your IRA custodian for a new beneficiary designation form and fill it out. (This is the easiest way to make sure you'll have a copy of the form, even if you aren't going to name a new beneficiary.)
Some custodians let you download or even complete this form online. Others simply ask you to send them written instructions, specifying the name of your beneficiary, his or her birth date and Social Security number, your relationship (e.g., spouse, son, daughter, friend), and the percentage of the account this person is to receive.
2. Make a copy of what you send the custodian, for your own records. You need this copy to prove that you submitted one, in case the custodian loses it.
3. Write a cover letter to go with the form. In your cover letter, you'll ask the custodian to send you written confirmation that he has received your beneficiary designation form.
4. Make a copy of the cover letter for your own records.
5. Send the original beneficiary designation form, along with the cover letter, to the IRA custodian.
6. Stay on top of the situation by making sure you receive that written acknowledgement.
6. Put your copy of the form, your copy of the cover letter, and the custodian's letter of acknowledgement in a safe place. It doesn't have to be a safe deposit box. But wherever it is, you should make sure that your executor and/or your lawyer knows where to find it.
You can change your IRA beneficiary designation as many times as you wish. Just make sure you always date it, and always have a copy of the current form.
(c) Lynn Brenner, All Rights Reserved.