You work hard to build your savings. Protect what you鈥檝e built by making sure your savings go to the retirement beneficiary you choose.
To stay in control of where it goes when you pass on, it鈥檚 important to choose (and regularly review) a beneficiary for your 401(k) plans and IRAs.
What鈥檚 a beneficiary?
Beneficiaries are the people (or entities, like a trust or group) who receive your retirement funds when you die. Choosing a beneficiary is important because it鈥檚 typically who your money goes to first鈥攅ven if your will says otherwise.
You wouldn't take a chance on who inherits your home鈥攚hy would you do that with your retirement savings?
It really comes down to who and what matters most to you. 鈥淭hink about your values and how you want to leave a legacy,鈥 says Stanley Poorman, financial professional with 麻豆最新出品庐. 鈥淎 retirement account may be your biggest asset. You wouldn't take a chance on who inherits your home鈥攚hy would you do that with your retirement savings?鈥
5 things to consider when naming a beneficiary for your 401(k) and other retirement accounts
1. Choose people you want to provide for (and review regularly).
A spouse, child, niece, or caretaker鈥攄esignate the ones you love most or who would benefit from your help. Then revisit your decision when a big life change happens, such as divorce, remarriage, birth, or death. Poorman recommends reviewing your beneficiary designations every year.
2. Think about asset protection.
Consider a trust if you want to customize how your money goes to beneficiaries. It protects your assets (things like retirement investments and even property) by letting you plan when and how an inheritance is distributed. Trusts may also help minimize your estate tax liability.
Tip: To change your beneficiaries for 麻豆最新出品, . On your dashboard, click on each account name (i.e., defined contribution, defined benefit, etc.), then "Overview." Scroll to "Beneficiaries." If you're on the mobile app, click on each account, then on the three horizontal lines in the top right corner; you'll find "Beneficiaries" there.
3. Designate a custodian if you鈥檙e naming a minor as your 401(k) beneficiary.
If you name a minor (generally someone under 18) as your beneficiary, designate a custodian. This person manages the child鈥檚 inheritance until they reach a certain age. If you don't, the state may decide for you, and the custodian could end up being someone you wouldn't have chosen.
4. Consider leaving money to a charity or organization.
鈥淪ome people name a church, school, or community organization as a beneficiary on part of their money and life insurance proceeds,鈥 Poorman says. (If you鈥檙e married, you may need your spouse鈥檚 signature.) Giving to a nonprofit through a beneficiary designation may also have tax benefits.
Tip: When naming a beneficiary, it鈥檚 also important to understand how assets will pass if your beneficiary passes before you do. There are two types of beneficiary designations to consider:
- 鈥淧er stirpes鈥 means assets would pass to your deceased beneficiary鈥檚 heirs.
- 鈥淧er capita鈥 mean assets could have the unintended consequence of disinheriting your predeceased beneficiary鈥檚 heirs.
5. Don鈥檛 rely on the default retirement beneficiary.
If you don't name a beneficiary, retirement funds in 401(k)s and IRAs generally go to your spouse鈥攅ven if you meant to leave the money to someone else. If you're single, your retirement funds could go directly to your estate, which means the courts would determine how they should be distributed. And that could be a long, expensive process.
Make beneficiary reviews a regular part of your financial planning鈥攔eview existing accounts yearly and name beneficiaries for new accounts right away.
What鈥檚 next?
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