401k Accounts and Inheritances: Pay Careful Attention to the Rules!

by TTMK on August 13, 2012 · 4 comments

Wouldn’t it be so great to be sure that we could live a healthy long life, where we have no worries about money? Along those lines, wouldn’t it be nice to know that if we ever want our closest family members to be beneficiaries, that we would have nothing to worry about? In other words, peacefully knowing that things would go according to our wishes.

Well, it is good to be informed about how things really work, and what we have to do in order to help make our wishes happen.  In this case, I’m referring to the rules surrounding inheritances and 401(k) accounts.  Based on what can be seen in this Wall Street Journal article, I’ll bet there are plenty of folks that aren’t aware of the specifics.  We can only hope that gold diggers aren’t aware!

Here is how it goes, depending on your marital status.

Married

In this case, it is assumed that your spouse is the beneficiary.

That might seem normal, and in many cases is probably is. However, what if you named somebody else a beneficiary? There are people who remarry later in life, have grown up kids, or any number of different aspects to their lives.  If they name another person as a beneficiary, it might not matter, apparently.  It seems as if the spouse has to be in agreement for another person to be the beneficiary.

Is that fair that a person wants his or her grown up kids to get the hard-earned savings that have accumulated, but a gold digger 2nd spouse swoops in and claims it regardless of the benefactor’s wishes? No, it sure doesn’t seem fair. But, it can happen!

There might be ways around this, such as moving funds to an IRA, which would be governed by state versus federal laws.

Single

In this case, whoever you name as your beneficiary will get the money.

Again, seems straightforward, right? Well, what if you named one person a beneficiary, but later decided that you wanted someone else to get the money instead.  Perhaps you wrote up your will in a way that allowed for someone to be designated as the one to get the money?

Well, whoever is specifically designated as the official beneficiary gets the money in that case. So, in case you forget to change the necessary documents, you could be out of luck.  It would be wise to align your wishes to the required documents to avoid such a problem!

Summary – I have to offer an obvious disclaimer that you should not rely on this as professional advice – for that, seek a professional with these matters (not me).  However, as a personal finance enthusiast, I have to say that these types of matters show that what might seem like common sense to many people aren’t actually in place as the rules.  It’s best to be informed, and pay attention to the rules to make sure that your wishes are actually carried out.

Questions for Everyone:

  • Are you surprised by these rules?
  • Do you think these rules are completely fair, or not a good fit with the realities of today?
  • Do you see this as an opportunity for gold diggers (male or female) to make undeserved money?

 

 

{ 4 comments… read them below or add one }

Kathleen @ Frugal Portland August 13, 2012 at 12:13 pm

Do you think these things can be changed online? Like through Fidelity?

Reply

TTMK August 14, 2012 at 8:14 pm

Good question! I haven’t personally tried 🙂

Reply

SB @One Cent at a Time August 13, 2012 at 10:30 pm

401k has very complex set of rules unless you consult a pro you may incur penalty or may not know certain benefits.

Reply

TTMK August 14, 2012 at 8:15 pm

Agreed SB, 401k accounts are subject to rules that are more complex than meets the eye

Reply

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