How Retirement Accounts Are Handled In Florida Estate Plans

If you have an IRA, 401(k), or other retirement account, you may already know it is one of your most valuable assets. But do you know how it fits into your Florida estate plan? Many people are surprised to learn that retirement accounts do not pass through a will the way other property does. Understanding the rules that govern these accounts can make a real difference for your loved ones after you are gone.

Retirement Accounts Pass Outside of Probate

One of the most important things to know about retirement accounts is that they are non-probate assets. That means they pass directly to whoever you have named as a beneficiary on the account itself, completely separate from your will. Even if your will says one thing, the beneficiary designation on your IRA or 401(k) controls what actually happens to that money. This is why keeping your beneficiary designations current is so critical.

Under Florida law, beneficiary designations on retirement accounts are governed as part of a broader category of assets that transfer outside of the probate estate. Florida Statute Section 732.703 is also relevant here, as it addresses how certain beneficiary designations are affected by events like divorce, providing that a former spouse’s designation on certain accounts becomes void upon dissolution of the marriage.

What the SECURE Act Means for Your Beneficiaries

The rules for inheriting retirement accounts changed significantly with the SECURE Act of 2019 and the follow-up SECURE 2.0 Act of 2022. If you are leaving a retirement account to someone other than your spouse, these changes matter a great deal.

Under the current rules, most non-spouse beneficiaries who inherit a retirement account must fully withdraw the funds within 10 years of the original owner’s death. This replaced the old “stretch IRA” strategy that once allowed beneficiaries to take distributions over their entire lifetime. The 10-year rule applies differently depending on whether the original owner had already begun taking required minimum distributions (RMDs):

• If the original account owner died before their RMD start date, the beneficiary does not have to take annual distributions but must empty the account by the end of year 10.
• If the original account owner had already begun RMDs, the beneficiary must take annual distributions in years 1 through 9 and fully distribute the remaining balance by year 10.
• Certain “Eligible Designated Beneficiaries” are exempt from the 10-year rule altogether, including surviving spouses, minor children of the account owner, and individuals with a disability or chronic illness.
• Surviving spouses now have additional options under SECURE 2.0, including the ability to delay RMDs until the year the deceased spouse would have been required to begin taking them.
• Starting in 2025, penalties apply for missed annual RMDs under the 10-year rule, with a 25% excise tax on the missed amount (reduced to 10% if corrected promptly).

These rules create real tax planning considerations. Larger distributions forced into a short window can push beneficiaries into higher income tax brackets. Strategies like Roth IRA conversions during your lifetime may help reduce the tax burden for those who inherit your accounts.

Using Trusts as Beneficiaries

Some people choose to name a trust as the beneficiary of a retirement account rather than naming individuals directly. This can be useful for protecting assets for a minor child, someone with special needs, or a beneficiary who might mismanage a large inheritance. However, the rules around trusts as retirement account beneficiaries are complex, and a trust that was drafted before the SECURE Act may no longer work as intended.

For a trust to receive favorable treatment, it generally must qualify as a “see-through” trust, which allows the trust’s underlying beneficiaries to be treated as the account’s beneficiaries for distribution purposes. There are two main types: conduit trusts, which pass IRA distributions directly through to beneficiaries, and accumulation trusts, which allow distributions to remain inside the trust. Each has different tax implications under the current rules. If you have an existing trust that names a retirement account as an asset, it is worth reviewing whether it still accomplishes your goals under the current law.

Connect with a Florida Estate Planning Attorney Today

Retirement accounts are often one of the largest assets a person owns, and getting the planning right matters. At Millhorn Elder Law Planning Group, we work with clients throughout The Villages and central Florida to make sure their beneficiary designations, trusts, and overall estate plans are properly coordinated. If you have questions about how your retirement accounts fit into your estate plan, The Villages estate planning attorneys at Millhorn Elder Law Planning Group are here to help. Contact us today to schedule a consultation.