Typically, you cannot give your individual retirement accounts (IRAs) to someone else. Neither can you withdraw funds from them on behalf of another person. These accounts belong to the individual who owns the account.
However, in exceptional circumstances, you can withdraw the funds on another person’s behalf, or someone can make the withdrawals on your behalf. One of these particular circumstances is when an IRA power of attorney (POA) is in use.
What Is Power of Attorney?
A power of attorney (POA) is a legal document that authorizes another person to act on your behalf concerning your personal, business, financial and medical matters. However, not all POAs are created equal. They vary based on the level of authority one hands over to someone else.
Five main types of power of attorney exist:
1. General Power of Attorney
A general POA is a comprehensive document that authorizes a representative to handle all your matters. Your representative can enter into contractual agreements on your behalf, conduct financial transactions, gift people and employ professional help with such powers. But that person cannot get married on your behalf. Neither can your representative change your last will and testament.
You can use a general POA even when you are not incapacitated to ensure someone handles your personal and business affairs when you are out of the country for an extended period.
It’s also worth noting that a general POA expires upon death or when you become incapacitated. However, you can also revoke it, or it can become invalidated in a court of law.
2. Special or Limited Power of Attorney
A special or limited POA is a document that specifies what sort of powers your representative has or doesn’t have. For this reason, it must be as detailed as possible to prevent confusion. Therefore, it limits the scope of your agent’s abilities to conduct your affairs.
With such powers, you can instruct another person to conduct your business transactions, manage your real estate investments and even collect debts. But you could assign the management of your private affairs to someone else.
However, once the task has been completed or the specified period has elapsed, the limited POA expires. And you can use it when you are unable to conduct some of your affairs for different reasons such as health complications or other commitments.
One of the best examples of a limited POA is a special financial POA. This kind of authorization will allow someone you trust to conduct financial transactions on your behalf for a set period. But that person doesn’t have to run the other aspects of your life. You can also have a limited medical power of attorney that enables someone to conduct affairs on your behalf when you are incapacitated.
3. Durable Power of Attorney
A durable POA enables your representative to act on your behalf from the moment you sign it and even after you become incapacitated and can no longer make decisions for yourself. So long as you are competent, you can revoke the durable power of attorney. Otherwise, it stays in effect until you die.
A medical power of attorney is an example of a durable POA. It authorizes your agent to make healthcare decisions on your behalf when you become incapacitated. These may include letting you die, medications, surgery, which hospital and staff should administer your care, etc.
You can also opt for a durable financial power of attorney. In such a case, your representative can make financial decisions on your behalf when you are not in a position to do so.
4. Non-Durable Power of Attorney
A non-durable POA is only valid when you are competent. The moment you become incapacitated, the non-durable POA is no longer effective. From then on, only a conservator or court-appointed guardian can make decisions on your behalf.
In addition, a non-durable power of attorney can also expire as soon as the agent you have authorized to act on your behalf performs the required task.
5. Springing Power of Attorney
Unlike other types of POAs, a springing power of attorney is not always effective immediately. It only “springs” into effect at some future time when a specified condition is met. For example, when you become incapacitated or leave the country on a military deployment, the springing power of attorney can come into effect and allow someone to run your affairs.
However, you can also create a springing power of attorney that ends when a condition is met. That condition may include when you die or become incapacitated.
Can A Power of Attorney Cash In An IRA?
An IRA POA can withdraw from or cash in an IRA if you authorize your representative to conduct your financial affairs and manage your retirement accounts. And you may also have to fill in documentation provided by your IRA custodian.
However, the language used within the document must be precise. If it’s not, your IRA custodian may not accept it. Alternatively, it may be accepted but limit your representative concerning what they can do financially on your behalf. So, be sure to include all the instructions.
You can also set the conditions under which your agent cashes in your retirement account income to safeguard your interests. There are many ways you can do that:
- If you already have someone managing your affairs, you can set up a durable POA that will remain effective even after becoming incapacitated. Doing so will enable your agent to withdraw your IRA money on your behalf and use them based on your instructions.
- If you are currently managing your affairs but are worried you wouldn’t be in a position to do so in the future, you could get a springing POA that will come into effect when specified conditions are met. For example, you could ensure that someone can access your IRA withdrawals when you are deployed or become incapacitated.
- If you manage your private affairs but need someone to handle your financial matters, including accessing your IRA funds, using a special financial POA could work.
Can IRA Power of Attorney Change IRA Beneficiaries?
A power of attorney can enable someone to change the bank and IRA beneficiaries. If an IRA power of attorney's language is written so that it grants your representative the authority to do that, then an agent could make changes concerning beneficiaries. For this reason, you should be careful to specify what your agent can or cannot do on your behalf when they get power of attorney. A POA is only as strong as the language in it.
When thinking about POA and IRA withdrawal matters, you need to be careful. That’s because when you give someone the power to conduct affairs on your behalf, they can abuse that power and rob you or your loved ones blind.
However, a well-implemented IRA POA can ensure that your financial obligations are met even when you are incapacitated. It will also enable your loved ones to live in comfort when you are no longer in a position to take care of them. For that reason, the agent you choose should be very trustworthy. In addition, you should be very specific about what your representative can or cannot do concerning your IRAs and the monies within them. That way, you can safeguard your interests.
- LEGALZOOM: What Is a Power of Attorney (POA)?
- FREEWILL: 5 types of power of attorney, explained
- LegalTemplates: Types of Power of Attorney: 5 Different Powers of Attorney Explained
- NOLO: The Durable Power of Attorney: Health Care and Finances
- LegalNature: What are the Different Types of Power of Attorney?
- Kindred Healthcare: 4 Types of Power of Attorney: What You Should Know
- Carolinefep: Is Your Durable Power of Attorney Powerful Enough?
- LEGALZOOM: Can Power of Attorney Change Beneficiaries on a Bank Account?
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