You probably set up your Minnesota company 401(k) retirement plan account many years ago. By law, you had to also complete a beneficiary designation form.
You set up a primary beneficiary. This person receives your company 401(k) retirement plan account balance if you die. You also set up one or more contingent beneficiaries. These people receive your company 401(k) retirement plan account balance in the event that your primary beneficiary is no longer alive.
Most people never think about their company 401(k) retirement plan account forms again. Years and years can go by. How much has your life and family changed over the last few years?
What about a divorce? With a remarriage comes a whole new family.
Most people will think about updating their will. Good decision. Your new spouse and kids will inherit your assets upon your death. The same goes for your life insurance.
If you never update your company 401(k) beneficiary designation form, your ex spouse will be able to inherit your company 401(k) retirement plan account.
With 401(k)s, your spouse is the presumed beneficiary of your account upon your death. It makes no difference who is listed on the beneficiary form. Your spouse has to consent to naming someone else beneficiary.
Company 401(k) retirement plans are governed by the federal Employee Retirement Income Security Act, or ERISA. Only a spouse can waive the right to individual company 401(k) retirement plan assets. Not even a prenuptial agreement can help you after you remarry.
The passing of a company 401(k) retirement plan account does not follow the terms of the will. Wills don’t have the final say concerning assets held in retirement accounts — 401(k) plans and individual retirement accounts (IRAs). The beneficiary provisions of these accounts supersede those of wills.
Company 401(k) retirement plan accounts require that account assets automatically go to the person who is your spouse when you die – unless you get your spouse to relinquish his or her claim to the assets. These forms are available from your company 401(k) retirement plan provider.
After your death, your IRA assets go to whomever you designate as the beneficiary when you set up the account, unless you’ve since filed an updated beneficiary form.
With IRAs, the beneficiary designation follows state laws. You can name anyone you like as the beneficiary with or without your spouse’s consent.
I am not an estate attorney. And I am not an accountant. But I do want you to think about how your company 401(k) retirement plan and IRA beneficiaries are set up.
Don’t make the same mistakes that I have read about other people making.
Ric Lager
Lager & Company, Inc.
