When was the last time you checked your beneficiary designations for your retirement accounts that were established years ago? Beneficiaries are the individuals or entities (such as a charity) that you name to receive these assets upon your death. You may find that your designated beneficiary is not who or what you think it should be, especially if you have divorced, remarried or had children since your retirement plan account was established.
Retirement plans allow you to designate a beneficiary. Completing a beneficiary designation form will override other estate planning. For example, you may have named your brother as your beneficiary to your retirement plan while you were still single. Years later you married, wrote a will, but failed to change the beneficiary on your IRA and 401(k) plans. Upon your death, your brother would still receive this benefit, not your spouse.
For qualified plans such as profit sharing plans and 401(k) plans, federal law requires married participants to name their spouse as the primary beneficiary. The retirement account owner can only designate a non-spouse primary beneficiary if the spouse signs a document waiving their right to the designation and this approval is properly notarized.
It is also very important that you have provided both primary and contingent beneficiary designations. Contingent beneficiaries are designated in case there are no surviving primary beneficiary(s).
Providing name, address, social security number, relationship, and percentage for each beneficiary will clarify your wishes.
If you fail to properly file a beneficiary designation, your beneficiary may be determined by federal law, state law, or by the plan document that governs your retirement accounts.
Before you submit your designation, you may want to consult with your attorney, financial advisor, or CPA to ensure your objective will be met. If you have already submitted your beneficiary designation, you can still check its status. You should not assume that your IRA custodian will notify you if the designation is ambiguous or does not meet requirements. In most cases, the problem is noticed only after the account owner is deceased and the beneficiary is ready to claim the assets.
ACTION PLAN: Check all beneficiary designations on retirement accounts to assure you have the correct beneficiary named.
Thomas F. Scanlon, CPA, CFP®
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