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Naming a Minor as an IRA Beneficiary

April 12, 2023

It is common for parents to want to leave their assets to their kids in the future. Their estate planning documents may have instructions to leave their assets to their kids once both parents are gone, but retirement accounts are separate from an estate plan and therefore have different tax implications, especially if the children are minors.

It is often more tax advantageous to list a spouse as the primary beneficiary of a retirement account rather than children. In addition, minor children cannot own assets and most likely will need a guardian until they become adults. Therefore, a retirement account owner should consider who will be the guardian of a minor beneficiary and whether that person is trustworthy to manage the funds for the minor.

Of course, there are always exceptions to this rule, such as mixed marriages, or other reasons to name a minor as a beneficiary. If the goal is to indeed leave assets to your minor child, it is recommended that retirement account owners meet with a professional to explore all their options including listing a TRUST or Custodial Account for the minor as the beneficiary. Listing a TRUST can help accomplish the goals of maintaining control over the assets while the beneficiary is a minor but come with strict distribution rules and some tax consequences.