Retirement plans are one of the greatest tax breaks available. When you are making money and your income tax rate is high, you place pre-tax income into an account. The money compounds tax free for several decades, then in your elderly years when your personal tax rate is likely to be lower, you pay income tax only on annual distributions.

The downside to retirement plans is that because they are treated differently than other financial accounts, you have to treat them differently in your estate planning too. There are three facts you should know about retirement accounts and estate plans.

First, retirement plans are not easy to integrate into your estate plan. If you have a will-based plan, you must be aware that the beneficiary designation on the retirement account overrides your will. Suppose you get divorced and write a new will stating that your children, instead of your former spouse, should inherit your IRA. Unless you also update the IRA beneficiary designation, which probably names your former spouse, the money will not pass to your children. Rather, the account will pass to whoever is named on the beneficiary designation at the time of your death. In trust-based estate plans, you need to be careful to avoid retitling retirement accounts in the name of the trust, because that is considered a distribution and may prompt early taxes and penalties. » Read more: Estate Planning With Retirement Plans