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401(K) Plan Beneficiary Designations

May 04, 2012 | Comments: 0 | Views: 173

Most adults have completed a beneficiary designation form at some point. We complete it when we are hired, or become eligible for the company 401(k) Plan, and then we forget about them. But your beneficiary designation for your retirement plan is a critical part of your tax and estate planning. While many of us make sure that other important documents such as wills are updated on a frequent basis, it is easy to overlook your retirement account information.

Often people think "I have a will; I'm covered". But having a will is not enough. Most people are not aware that your beneficiary designations for your retirement account override your will.

The primary purpose of naming a beneficiary is that those assets can pass directly to whomever you designate. They won't have to go through probate, which can be a lengthy and expensive process.

You can name almost anyone your beneficiary, including individuals, charities, and trusts. However, if you are married, Federal Law mandates that your spouse is your default beneficiary and he or she must consent in writing to any other beneficiary. While children can be named as beneficiaries, they cannot control the assets until they reach the age of majority (age 18, in the state of Indiana). Therefore, it is advisable to set up a trust in their name and then name the trust as your beneficiary. That way you have control over who the trustee of the trust will be rather than have the court decide who will handle the money until the child reaches 18 years old. Also, unless you want the child to have complete control of the money when they turn 18 years old, there are other reasons to set up such a trust.

If you have been divorced, married or remarried, or had children since your retirement plan account was established, you should review your beneficiary designation on file to be sure it still reflects your wishes.

Here are some tips:

• Periodically review your beneficiary designations to make sure they still reflect your wishes

• Update your beneficiary designations after any major life change (marriage, divorce, birth of children, job changes, etc.)

• Keep a copy of your beneficiary designation form for your records

• Be sure that contingent (secondary) beneficiaries are named in the event your primary beneficiary dies before you do

• Keep in mind that your beneficiary designations will override your will

• If you are married, your spouse must consent to any other beneficiary

• Do not name your minor children. Set up a trust for them first and then name the trust as your beneficiary

• Seek the professional advice of an estate planner or tax or financial advisor if you have any questions regarding how to allocate your assets

Stacey L. Spencer is a 401(k) Administrator with Greenwalt CPAs in Indianapolis, IN. Please visit our website to see what Greenwalt can do for you. Go with Greenwalt. We deliver peace of mind.

Source: EzineArticles
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