The following is a great post from “You and Yours Blawg” about myths and misconceptions regarding designating a beneficiary for your retirement plans.
At the start of the new year, many people take a
look at their qualified retirement plans (IRA, 401(k), etc.) as they
plan savings goals for the new year. But what if you aren’t the one
getting the benefits, because you have died? How are the benefits
getting to your family? Below is a list of some Myths and
Misconceptions about Retirement Plan benefits (which can also be
thought of a as a list of what NOT to do).
- My Retirement
Plan is distributed the same as my Will. WRONG! Your Retirement Plan is
distributed according the Beneficiary Designation you complete for each Retirement Plan.
I don’t name a Beneficiary, my Retirement Plan will be distributed to
my Estate. MAYBE. Some Retirement Plans say that if there is no
beneficiary, it will pass to your Estate. Others give a list of people
who will receive the plan in order of priority (spouse, children,
etc.). However, if a Retirement Plan is payable to your Estate, there
are negative income tax consequences (remember – you haven’t paid any
income taxes on these assets yet) that are best avoided. Also, for
domestic partners or similar, there are never any default provisions
for payment to the surviving partner – a Beneficiary Form must be
- If my spouse is named as Beneficiary and
we are divorced, she is automatically no longer the Beneficiary. WRONG!
Unless you act to change your Beneficiary Designation, your ex-spouse
is still your primary beneficiary – not a situation you want to be
looking down on from the great beyond. File the Change of Beneficiary
when you file for separation.
- If my minor children are
named as Beneficiaries, and I created a trust for them in my Will, then
the Retirement Plan will be distributed subject to those trust terms.
WRONG! Unless you name the trust created for your children as the
Beneficiary of the Retirement Plan, your darling angels will get access
to all the Retirement Plan funds at the mature age of 18 (or 21).
know who are my Designated Beneficiaries. MAYBE. Many times a person
thought they filed out a Beneficiary Designation, but didn’t, or
thought they named Contingent Beneficiaries, but didn’t, or thought
they named a trust for this children, but didn’t. You should check or
change your Beneficiaries today. A Change of Beneficiary form can
usually be downloaded right from the website holding the assets.