One of the most important ways to plan your money forward is to keep your beneficiary elections up to date. Just like life insurance, retirement plans pass directly to the person or entity you’ve named on your beneficiary election. Here’s what you need to know:
Your Spouse is Your Primary Beneficiary
If you are married, Federal law states that your spouse is your primary beneficiary, period. You are free to name someone else, for example, children from your first marriage, but your spouse must sign off on this election in front of a notary public. If you are unmarried, you may name anyone you wish, but upon marriage, your spouse becomes your primary beneficiary, even if your beneficiary election indicates otherwise. You are free to name contingent beneficiaries, also known as successor beneficiaries, in case the person you named as primary beneficiary passes before you or with you.
Naming Children as Beneficiaries
If you name minor children as beneficiaries, their guardian will be responsible for management and safekeeping of your account until the child turns the age of majority. If you’re not sure you want your children’s guardian to have access to the funds, you may want to consider naming another loved one or setting up a trust. Be sure to consult with a tax advisor before naming a trust as a beneficiary.
Keep Them Up-to-Date
It’s critical that you keep beneficiary elections up-to-date after significant life events. Court cases have ruled that ex-spouses were entitled to retirement accounts from their deceased ex-spouses because elections were not updated.
Beneficiary Elections Name Who Not How Beneficiary elections determine who gets the account, not how. If you wish to dictate how your loved ones receive the money, you’ll need to consider setting up a trust. An estate planning attorney can advise you on how best to establish a trust.
What Beneficiaries Can Do With the Money
Beneficiaries can cash out any or all of the account. They will still owe income taxes on any pre-tax portion, but no tax penalty applies. Spouses have special rights. They can simply retitle the account as theirs. All the rules regarding tax deferral and distribution then proceed based on their age. Non-spousal beneficiaries aren’t that lucky. Non-spousal beneficiaries will generally have to either deplete the account right away or deplete it in its entirety within ten years.
What Happens When No Beneficiary is Named
Your family still receives your account, but without specific instructions, your savings will pass to heirs in the order determined by state law. The account will go through the probate process where a judge makes the official determination on who receives the asset. This costs time and money and may subject your account to dispute.
How To Check and Update Your Beneficiaries
Updating your beneficiaries is easy. Most plans allow you to confirm and update them right on your account’s website. Reach out to Francis LLC if you’re unsure how to access your account.
Did You Know?
Your employer sponsors this financial wellness benefit from Francis LLC. The benefit connects you with down-to-earth financial planners who educate, advise, and coach on any money matter…without the sales pitch. These financial planners are exclusively engaged by employers like yours and they have no investment products to sell, so you can feel confident that you will always receive objective advice.
Your financial planner will help you set priorities and achieve your money goals, without judgment or financial jargon. Know that all discussions are kept strictly confidential. This service is offered as an employee benefit and there are no per-session co-pays, so you can meet with a financial planner as often as you wish. Education and financial planning services are paid by your retirement plan or your employer.
Connecting with a financial planner is easy! Here’s how:
•Visit FrancisWay.com > Services > Participant Portal
•Call (866) 232-6457
•Download the free mobile app (Search for Francis LLC)
