There is one aspect of your Self-Directed IRA you may not have thought about that you should either take care of or double check on as soon as possible.
It has nothing to do with whether you are recently retired or still an estimated 40 years away from a possible retirement date.
This has everything to do with what happens to your IRA upon your passing. Even some of the savviest investors are not aware that the IRS has established different parameters for succession based on whether or not the owner of the Self-Directed IRA had or had not retired.
Depending upon your situation and your wishes, the need to examine this could be simple or complex. Although it might seem simple to verify that one name, such as a spouse, is correctly named as the beneficiary, it helps to verify.
Because a Self-Directed IRA is often many years away from being paid out in part or in full, it is possible that a divorce or the death of a scheduled beneficiary would change this. There have been instances where the instructions relating to an IRA have superseded the instructions in a Last Will and Testament.
Just knowing that information should be reason enough to verify the plan for your Self-Directed IRA, as well as to plan on doing so every few years for the same reason.
Situations in which multiple children and/or family members are involved could complicate matters if one of the beneficiaries has passed away, or if a divorce or circumstances create a change.
There is also the possibility of wanting to add a beneficiary. The birth of a child or grandchild is a prominent example.
Another consideration is in the event you do not name a person as your beneficiary. It is possible to name a Trust Fund or a charity as the beneficiary.
Some charitable organizations are considered to be a private foundation, while others are in the category of being a public charity. There are differences between the two, and how funds acquired via an IRA under such circumstances can and cannot be used by the appropriate organization.
Thus, if leaving some or all of your Self-Directed IRA to a charitable organization, you would want to be sure that the funds can be used to maximum value.
When dealing with a Trust Fund, it could be even more complex even without considering possible changes in the owners of the Trust due to death or divorce.
In most instances, a trust is formed and subject to the laws of the state in which it is established. This is in addition to IRS guidelines. It may be helpful to know that IRS Publication 557 contains language which is required in order for a trust to qualify for the event of transfer upon death.
If you have a large sum of funds involved, you may also want to take precautions regarding inheritance for your spouse. Although the situation may vary, and you should consult legal advice, generally speaking the spouse will have a choice.
One of the possible options for a spouse is to be able to designate him/herself as the owner of the IRA and continue according to his/her age and plans. For example, if the spouse is already receiving retirement benefits, the inherited funds would be added. If the spouse is years away from retirement, it is possible that the Self-Directed IRA could still be operated and continue to grow.
Another possible option is to rollover the funds into another IRA, whether Self-Directed or Traditional. However, the funds may or may not be subject to tax. This generally depends on whether the rollover is into a tax-sheltered annuity plan, qualified employer plan, or another Self-Directed IRA.
This is why you should review your Self-Directed IRA as soon as possible to be certain that anyone to everyone you wish to involve is properly accounted for, both from your part and theirs. Moving forward, you should review this every couple of years for any updates or change of situation. You want to make sure your loved ones are well taken care of.