July 12, 2016
Choosing the RIGHT Beneficiary: How to Responsibly Leave Your Retirement Plan to the Loved Ones that Matter Most to You
Choosing the Right Beneficiary
Many people assume that just because they have hit retirement age, they can simply take it easy and let the due process of law determine for them which of their loved ones can benefit from their retirement plans. However, as is always the case, it can be very easy to lose sight of certain things in the long run if you’re not being careful with how you bequeath your retirement plan like, for instance, your 401(k).
When most people open a retirement account, it can be fairly easy for them to gloss over some of the facts and just go straight to the “nitty-gritty”, as it were; in this case, it’s always naming their beneficiaries. While the spouses commonly get to be named as the beneficiaries to their significant spouses retirement plans, who do you name after your spouse?
The answer is, it depends.
It depends because for one, priorities and circumstances can change once we get older. And really, we’re not even talking about the likelihood of you and your spouse separating at some point in time; rather, it more has to do with the fact that that gesture may not prove to be the best choice not just for your spouse, but also for the rest of your family, too.
Here’s a more concrete example of what we are talking about: let’s say that you have named your spouse as the sole beneficiary to your 401(k) or IRA. When you pass on, your spouse now has the option of getting all your assets or, most likely, “rolling” yours over to his or her retirement plan.
Well, how about if you have other loved ones whom you think can benefit from your retirement plan? Well, that is where things get a little bit complicated.
Non-spouse beneficiaries do not have the option of rolling the deceased’s retirement plan into their own. However, they may have an “inherited IRA.”
With an inherited IRA, a beneficiary may stretch out the minimum required distributions over their life expectancy. However, there is no asset protection, so if there is a divorce, lawsuit, creditor action, the asset may be lost.
Naming beneficiaries are a tricky proposition, that too often are overlooked. Counsel with a Michigan estate planning lawyer to discuss the options, including stand-alone retirement plan trusts.