Business & Investment

Opinion: How to ensure your spouse gets your retirement savings when you die

When designating a beneficiary of a retirement account, it is usually, but not always, a surefire way to pass those assets directly to the desired heir without going through a probate.

For those beneficiaries Designation It’s so important that you should check your choices each year in case there is a change due to marriage, childbirth, divorce, death, etc. Especially marriage and divorce. It poses a serious problem to me: there are important differences regarding your spouse when dealing with IRA and 401 (k) beneficiary designations.

In general, spouses who are not designated as IRA beneficiaries are not eligible to inherit the IRA. Unlike 401 (k) plans, IRAs are not ERISA (Employee Retirement Income Security Act) compliant, so these accounts do not have the same protection for their spouse. Anyone who wishes to be a beneficiary of the IRA, even if married, is free to name it. However, community Property state. In fact, IRA is exempt from ERISA, even if the funds are generated at a 401 (k).

In contrast, under ERISA, if the owner of a 401 (k) account is married when he dies, his spouse is automatically entitled to receive money, regardless of the beneficiary designation. The exact percentage seems to be a matter of some disagreement. Some lawyers 50%, While others put it down 100%.. If the beneficiary is not listed, the spouse is entitled to 100% of the account.

The spouse can sign a waiver and waive the claim to the account, spouse At least 35 years old. It’s not enough to name someone else in the beneficiary form your employer gives you. The waiver must be completed with the spouse agreeing to the participant’s beneficiary choice. If your spouse signs an exemption that should be provided by the company that manages your 401 (k), the plan representative or notary must act as a witness. Why is this all annoying? Congress wanted to make sure that the surviving spouse had not been short-changed.

Designating a 401 (k) beneficiary requires special attention in divorce and remarriage. The rights of the surviving spouse are triggered regardless of when the property was accumulated or how long the couple was married. However, there are potential exceptions. The plan can include a one-year marriage rule. This requires the surviving spouse to be married to a plan participant for at least one year before gaining rights to a 401 (k) asset. However, not all plans have adopted this provision.

If your previous spouse abandoned your retirement asset claim due to divorce, please make sure that the beneficiary designation form has been modified to reflect the change. Otherwise, after your death, the plan administrator will give the money to the designated beneficiaries-it will be yours.

Often, the owner of a 401 (k) changes the beneficiary designation at the time of divorce and nominates the child as the beneficiary. If the owner later remarries, some or all of the 401 (k) assets (the exact percentage is a matter of mismatch) will be the new spouse rather than the child, even if the new spouse is not added as follows: Beneficiary-that is, unless the new spouse signs the exemption.

Please note that prenuptial agreements are not a substitute for a waiver. Instead, the law provides that the spouse must sign a waiver. This may be tricky as such exemptions can only be signed after the couple has been married. At that point, your spouse already has the right to be a 401 (k) beneficiary.

Are you planning a remarriage? If you want someone else to benefit from your 401 (k) asset, such as a child from a previous marriage, it’s wise to roll over your 401 (k) to your IRA account. Remarriage.. If your old employer has a 401 (k), that should be easy enough, but unless you’re 59½ years or older, your current employer’s plans may not have that option.

This column was originally Humble dollar.. Reissued with permission.

RICP CFA James McGlynn Next Quarter Century LLCThe company in Fort Worth, Texas, focuses on helping clients make smarter decisions on long-term care insurance, social security, and other retirement planning issues. He was a trust manager for 30 years.James is the author of Retirement planning tips for baby boomers.. His previous article is: Tax pussy female, When to return And Fatten that policy..

Opinion: How to ensure your spouse gets your retirement savings when you die

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