Saturday, May 24, 2014
While many people take the time to execute wills, many fail to realize that their wills do not have the final say concerning assets held in retirement accounts (i.e., 401(k)s and IRAs). The beneficiary provisions of these accounts supersede those of wills, and could create a problem for those who are divorced.
Unawareness of how inheriting retirement account assets works is a problem, as most of American’s liquid assets are held in such accounts. Rules governing 401(k) plans require that account assets go automatically to your spouse when you die, unless your spouse relinquishes their claim to the assets. IRA assets go to whomever you have designated as your beneficiary, unless you have filed an updated beneficiary form.
Failing to update beneficiary information could result in unintended consequences. To assure the right people inherit your retirement assets, follow these steps:
- If you have a will, designate your estate as the beneficiary of your retirement accounts.
- Update your will to reflect the beneficiary status of your retirement accounts.
- If you have 401(k) accounts held by previous employers, have them rolled over into an IRA.
- Designate secondary beneficiaries.
See Laura Mattia, How Your Ex-Spouse Could Inherit Most of Your Money, ABC Good Morning America, May 23, 2014.