My husband and I both have children from previous marriages. I have two sons, he has one daughter. We both work, and we each pay exactly half of all our expenses. We want to be fair about splitting our retirement accounts among our children. Can we designate our IRA beneficiaries so his daughter receives 50 percent of our IRAs and my sons each get 25 percent? Would our wishes be followed?

Certainly. But as I’ll explain momentarily, this plan may seem less fair to your kids than it does to you.

When designating more than one IRA beneficiary, it’s very important to specify how much each is to receive, says Ed Slott, a Rockville Centre IRA expert. He recalls a mother who left her IRA to her six children, listing only their names on her beneficiary form. “The bank decided the first named child was the primary beneficiary, and the others just contingent beneficiaries,” he says. “The oldest child had to withdraw the entire IRA to divide it with her siblings, paying $240,000 in taxes — taxes that could have been avoided if the mother had just put two words on the form: ‘equal shares.’ ”

But in your case, an “equal” split is bound to reduce someone’s inheritance.

For example, let’s say your husband’s IRA is worth $100,000 and yours is worth $125,000. If you each leave your IRA to your own kids, his daughter gets $100,000 and your sons each get $62,500. Your proposed split increases his daughter’s inheritance from $100,000 to $112,500, and cuts your sons’ shares from $62,500 to $56,250 each. And if his IRA is worth $125,000 and yours is worth $100,000, your proposal reduces her inheritance from $125,000 to $112,500, and increases your sons’ shares from $50,000 to $56,250 each.

THE BOTTOM LINE IRA beneficiary designations can have unintended consequences.

WEBSITES WITH MORE INFORMATION

irs.gov/retirement-plans/required-minimum-distributions-for-ira-beneficiaries

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lynnbrennersfamilyfinance.com/2011/05/when-ira-beneficiary-forms-are-missing-who-inherits.html

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