Fidelity IRA Time Bomb!

[John Olsen]

IRA “Time Bomb”. Let’s suppose that your unmarried client has an IRA at Fidelity, and, following your sound advice to split that IRA into several accounts so that the life expectancy of each beneficiary can be used for Joint Life Expectancy, for Required Minimum Distribution purposes, she splits the account into several accounts - each with a different child or grandchild as beneficiary. Fidelity remains the custodian for all accounts.

Now, suppose that she later decides, for whatever reason, to change the beneficiary of one of those accounts or adds a new IRA account, and, for that newer account, she wants to name her church as beneficiary. She uses the Fidelity form to do that.

But the boilerplate just above the signature block on that form says that this beneficiary information shall be effective for ALL IRAs of which Fidelity is custodian,including Roth, rollover, SEP-IRAs, and Traditional IRAs, and SHALL REPLACE ALL PREVIOUS BENEFICIARY DESIGNATIONS ON ALL FIDELITY IRAS.

She’s just made the church the beneficiary of ALL her Fidelity IRAs!

Would a "heads up" to our clients who have Fidelity IRAs be in order?

John L. Olsen, CLU, ChFC

Olsen Financial Group

St. Louis, MO

[Guest ptpnthr]

Good catch. Have you asked Fidelity about this?

[John Olsen]

The Red Queen's IRA Rules (Part Two):

I just finished talking to a Fidelity Retirement Plans rep. He confirmed that the IRA beneficiary form does, indeed, replace ALL prior beneficiary designations for ALL IRAs owned by the signator.

He did allow as how Fidelity will grant an EXCEPTION to that rule, if the client has at least $200,000 with Fidelity. In that case, the client can, if he insists, have separate designations for separate IRA accounts.

But if you have less than $200,000, it works like this - and I am not kidding: The last beneficiary designation keyed into the system will overwrite all prior designations. Period.

So... if you want to have three separate IRA accounts for your three kids, and you fill out three separate IRA beneficiary forms, the one at the bottom of the pile controls, and that kid wins the FIDELITY IRA LOTTERY!

When I expressed astonishment at this, the rep told me that I was not the first person to bring this to his department's attention, and that Fidelity's legal department is "studying this problem", and that they [in his department ] HOPE that a change will be made, SOMETIME NEXT YEAR.

Sometimes, folks, Bigger Ain't Better!

John L. Olsen, CLU, ChFC

Olsen Financial Group

St. Louis, MO

[Bruce Steiner]

Does anyone know of any IRA custodians or trustees that offer low or moderate cost no-load mutual funds (for those who prefer mutual funds) and low or moderate cost brokerage (for those who prefer to select stocks), and which do not create major hassles regarding beneficiary designations?

If anyone in this group works for an IRA custodian or trustee, this can be a great marketing opportunity for your institution.

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Bruce Steiner, attorney

(212) 986-6000 (NY office)

(201) 862-1080 (NJ office)

also admitted in FL