Author: Paul A. Carl, CHSA, CPFA™ Vice President, Retirement Plan Consulting, Registered Representative
Benjamin Franklin is most often credited with the quote, “Nothing is certain except death and taxes.” While many Retirement Meditations explore the tax advantages offered through retirement savings, this week’s Retirement Meditation will focus indirectly on death.
A client called me needing affirmation on the beneficiary designation form. Less than a month earlier, I had conducted on-site employee 401(k) education meetings and emphasized the need to complete the beneficiary designation form. “One of our employees was on his tractor over the weekend. The tractor rolled and…,” the client’s shaken voice tailed off. Nothing more needed saying. The client was able to confirm that the participant’s form was on file and in proper order.
Naming a retirement plan beneficiary is simple, yet many participants do not have a valid or a current designation on file. Without a valid beneficiary form, the retirement account will most likely fall to probate with the governing state’s rules ultimately determining the retirement beneficiary. Without a current designation form on file, a deceased participant may transfer retirement plan assets to an unintended beneficiary.
Below are several important considerations:
- For qualified retirement plan participants who are married, the spouse must be the 100% primary beneficiary. If the spouse is not the named 100% primary beneficiary, the spouse must consent to that fact in writing and that consent must be witnessed by the plan administrator or a notary.
- For unmarried participants of a qualified retirement plan, any person can be named as primary beneficiary.
- Selecting multiple primary beneficiaries is perfectly acceptable. However, if the participant is married, the spouse must consent in writing. Example: Married participant designates primary beneficiaries as spouse 50% and two children 25% each. The spouse – even if the children belong to the spouse – must consent to this designation in writing.
- Any person(s) can be named as contingent beneficiary. The contingent beneficiary is paid if the primary beneficiary has pre-deceased the participant.
- When you encounter any major life change, evaluate your retirement plan beneficiary designations. Marriages, divorces, children may require beneficiary designation updates.
- Seek appropriate professional assistance if you have complex estate matters, such as high net worth or beneficiaries with special needs.
- Designating one or more charities as beneficiary could reduce or eliminate taxes that would otherwise be imposed on the retirement plan assets. Seek appropriate professional assistance before naming one or more charities.
- Be aware that IRA’s (and life insurance policies) have similar but different rules than qualified retirement plans.
Without looking – Who is named as your primary beneficiary?
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