Have financial questions? Every week, TheBayNet will spotlight a Financial Focus article on an important topic provided by Edward Jones Financial Advisor Wilman Wai Man Cheung.

This week she looks the importance of reviewing your 401K and IRA beneficiaries.

Review your IRA, 401(k) beneficiaries

If you’ve had an IRA and a 401(k) for many years, you may occasionally ask yourself some questions: “Am I contributing enough?” “Am I still funding these accounts with the right mix of investments for my goals and risk tolerance?” But here’s one inquiry you might be overlooking: “Have I used the correct beneficiary designations?” And the answer you get is important.

It wouldn’t be surprising if you haven’t thought much about the beneficiary designation – after all, it was just something you once signed, possibly a long time ago. Is it really that big a deal?

It could be. For one thing, what if your family circumstances have changed since you named a beneficiary? If you’ve remarried, you may not want your former spouse to receive your IRA and 401(k) assets or the proceeds of your life insurance policy, for which you also named a beneficiary.

However, upon remarrying, many people do review their estate plans, including their wills, living trusts, durable powers of attorney and health care directives. If you’ve revised these documents, do you have to worry about the old beneficiary designations? You might be surprised to learn that these previous designations can supersede what’s in your updated will and other documents. The end result could be an “accidental” inheritance in which your retirement accounts and insurance proceeds could end up going to someone who is no longer in your life.

Furthermore, your retirement plans and insurance policy may not just require a single beneficiary – you may also be asked to name a contingent beneficiary, to whom assets will pass if the primary beneficiary has already died. As you can imagine, the situation could become quite muddled if stepchildren are involved in a remarriage.
To avoid these potential problems, make sure to review the beneficiary designations on all of your accounts at some point – and especially after a significant change in your family situation. If you see something that is outdated or incorrect, contact your retirement account administrator – or your insurance representative, in the case of life insurance – to request a change-of-beneficiary form.

And if you really want to be on the safe side, you may want to enlist a legal professional to help you with this review to make sure the beneficiary designations reflect your current family situation and are consistent with what’s in your estate plans.

In fact, if you’re already working with an experienced estate planning attorney – and you should – you might also pick up some other suggestions for dealing with beneficiaries. Just to name one, it’s generally not a good idea to name minor children as beneficiaries. Because children can’t control the assets until they become adults, a court would likely have to name a guardian – one that you might not have wanted. Instead, you could either name your own custodian to manage the assets designated to the minor or establish a trust for the benefit of the minor, which can distribute the money in several disbursements over a period of years – which is often a good move, since young adults aren’t always the best at managing large lump sums.
If you’re like many people, you have a strong desire to leave something behind. But you’ll want to do it in the right way. So, pay close attention to your beneficiary designations – when you first create them and throughout your life.

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Are trust services right for you?

If you’re extremely busy with your career and family and you’ve accumulated a fair
amount of assets, you might be concerned about a variety of issues related to financial management and legacy planning. Specifically, you might think you don’t have the time or expertise to deal with these matters effectively. If this is the case, you might want to consider using a trust company.

You might think you need to have a large estate or millions of dollars to benefit from
working with a trust company, but that’s not the case. And if you’re not familiar with what a trust company can do, you might be surprised at all the services it can provide, including the following:

• Wealth management – Typically, when working with a trust company, you’ll receive
investment management designed to help you achieve various goals, such as a comfortable retirement and college for your children. The company can manage retirement accounts, monitor investments and disburse funds, make changes as needed and ensure compliance with government reporting for contributions, withdrawals and rollovers. While different companies operate in different ways, you may have an arrangement in which you work with a personal financial advisor and a separate portfolio manager.

• Financial management during incapacity – If you were to become incapacitated and
couldn’t make financial decisions, a trust company can step in, giving you peace of mind from knowing that your financial assets will be managed by a team of professionals, helping protect you and your family from potentially dire consequences.

•Trust administration – A trust company can perform several essential tasks related to
administering your trust. The company can act as trustee for a trust you’ve established, such as a revocable living trust, which can allow your estate to avoid probate while providing you with great control over how your assets will be distributed at your passing.

Alternatively, the trust company can work alongside an individual you’ve designated to execute the terms of a trust. If your selected trustee resigns or becomes unable to make decisions, the trust company can serve as successor trustee. When it’s time to settle your estate, the trust company can handle the valuation, dispersion and re-titling of assets, pay off any debts and expenses, and complete any tax returns related to your estate.

• Bill payment and recordkeeping – A trust company can keep up with all the trust’s bills (household maintenance, medical bills, etc.) and provide statements summarizing receipts, disbursements and the value of assets within the trust.
In addition to providing these practical services, a trust company may benefit you in a
more intangible way. It’s unfortunate but true that, in many families, dividing up assets can cause conflict and bitter feelings. But when a trust company serves as trustee, it impartially administers distribution of the assets based on the instructions you’ve provided in the trust – helping minimize family disputes over inheritances.

If you ever feel like the complexities of wealth management and trust administration are getting to be more than you can handle – or perhaps more than you want to handle – consider contacting a trust company. You might find that it can make your life a lot easier.

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Is Roth IRA better for young workers?

If you’re in the early stages of your career, you’re probably not thinking much about retirement. Nonetheless, it’s never too soon to start preparing for it, as time may be your most valuable asset. So, you may want to consider retirement savings vehicles, one of which is an IRA. Depending on your income, you might have the choice between a traditional IRA and a Roth IRA. Which is better for you?

There’s no one correct answer for everyone. But the more you know about the two IRAs, the more confident you’ll be when choosing one.

First of all, the IRAs share some similarities. You can fund either one with many types of investments – stocks, bonds, mutual funds and so on. And the contribution limit is also the same – you can put in up to $6,000 a year. (Those older than 50 can put in an additional $1,000.) If you earn over a certain amount, though, your ability to contribute to a Roth IRA is reduced. In 2021, you can put in the full $6,000 if your modified adjusted gross income (MAGI) is less than $125,000 and you’re single, or $198,000 if you’re married and file jointly. The amount you can contribute gradually declines, and is eventually limited, at higher income levels.

But the two IRAs differ greatly in how they are taxed. Traditional IRA contributions are typically tax-deductible (subject to income limitations), and any earnings growth is tax-deferred, with taxes due when you take withdrawals. With a Roth IRA, though, your contributions are never tax-deductible – instead, you contribute after-tax dollars. Any earnings growth is tax-free when withdrawn, provided you’ve had your account at least five years and you don’t take withdrawals until you’re at least 59½.

So, which IRA should you choose? You’ll have to weigh the respective benefits of both types. But when you’re young, you may have particularly compelling reasons to choose a Roth IRA. Given that you’re at an early point in your career, you may be in a lower tax bracket now than you will be during retirement, making the tax-deduction of traditional IRA contributions less beneficial. So, it may make sense to contribute to a Roth IRA now and take tax-free withdrawals when you’re retired.  

Also, a Roth IRA offers more flexibility. With a traditional IRA, you could face an early withdrawal penalty, in addition to taxes, if you take money out before you’re 59½. But with a Roth, you’ll face no penalty on withdrawals from the money you contributed (not your earnings), and you’ve already paid the taxes, so you could use the money for any purpose, such as making a down payment on a home. Nonetheless, you may still want to be cautious about tapping into your IRA for your spending needs before you retire, since IRAs are designed to provide retirement income.

If your income level permits you to select a Roth or traditional IRA, you may want to consult with your tax advisor for help in making your choice. But in any case, try to max out on your IRA contributions each year. You could spend two or three decades in retirement – and your IRA can be a valuable resource to help you enjoy those years.

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Here’s a look at the ‘New Retirement’

Once you retire, what can you expect from your life? You might be surprised by the things that current retirees are saying about their lifestyles, priorities, relationships and hopes for the future. And you also might find this knowledge quite helpful as you prepare for the day when you become a retiree.

First of all, retirement today is far different – and potentially far more rewarding – than was the case a generation or so ago. Of course, people are living longer now, but the new retirement environment isn’t just about longevity – it’s also about using one’s time in a meaningful way, deepening connections with family and contributing to communities. All these capabilities fit into a framework of four key “pillars”: health, family, purpose and finance, described in a study by Edward Jones and Age Wave called Four Pillars of the New Retirement: What a Difference a Year Makes, which also looks at how attitudes and opinions have changed during the COVID-19 pandemic.

Among the study’s findings is a piece of good news: 76% of Americans credit the pandemic with causing them to refocus on what’s most important in life.
And one important element in the life of retirees is, not surprisingly, their optimal well-being in their retirement years. The overwhelming majority of retirees say that all four pillars are essential to this well-being. Let’s look at these pillars and see what you can do to support them:

• Having good physical/mental health – Health care and long-term care costs are the greatest financial worries in retirement, according to the Four Pillars study. A financial advisor can recommend ways of addressing these expenses, but you can also take familiar steps, such as getting regular exercise and following a well-balanced diet, to maintain and improve your health. 

• Having family and friends that care about me – Retirees say that the top contributor to their identity in retirement is their relationships with loved ones, again according to the Four Pillars study. Clearly, it’s important to keep up your relationships with family and friends, before and after you’re retired.

• Having a sense of purpose in life – Those with a higher sense of purpose have better overall health, greater cognitive functioning, higher life satisfaction, increased mobility/functioning and longer lifespans, according to the Four Pillars report, citing research from the International Journal of Aging and Human Development. So, by volunteering and getting involved in community activities, you’ll not only be helping others, but also yourself.

• Being financially secure – During the pandemic, retirees fared better than other demographic groups because they had stronger financial safety nets, including Social Security, Medicare and a high degree of home ownership. Still, just 56% of men and 40% of women are confident about their retirement savings, according to the Four Pillars survey. So, if you haven’t yet retired, you’ll still want to bolster your finances by contributing as much as you can to your investment accounts. And once you do retire, you’ll want to make sure you don’t take too much from these accounts too soon, helping you avoid the risk of outliving your money. 

As you can see, it’s important to take a holistic approach to retirement in the 21st century. And when you do, you can find your days as a retiree to be greatly fulfilling.


Edward Jones, its employees and financial advisors are not estate planners and cannot provide tax or legal advice. You should consult your estate-planning attorney or qualified tax advisor regarding your situation.

If you have questions about this article or other financial matters, contact Wilman at 301-690-8130 or email  wilman.cheung@edwardjones.com.