While it’s often the last step in enrolling in your employer’s retirement plan, this step is probably the most important one as far as your loved ones are concerned. It’s not fun—for you at least, since you’ll be contemplating your mortality. I think it would be great fun to be included as a beneficiary, however. Go ahead and contemplate your mortality, but spell my name correctly.
Here are some bullet points for your consideration:
- Your IRA and company-sponsored retirement plan’s beneficiary designations trump your will. If your will says your assets are to be divided among your children, and the beneficiary designation on your 401(k) says that a charity is the primary beneficiary, then the 401(k) will go to the charity; not your children.
- Your spouse is intended to be the primary beneficiary of your employer’s retirement plan if it is governed by ERISA. A change away from this will require your spouse’s authorization and a likely notarization.
- If you do not specify a beneficiary(ies), your spouse will be your beneficiary.
- Some retirement plans are not governed by ERISA and thus this may not apply.
- If you list your spouse as your primary beneficiary and later become divorced, you must update your beneficiary designation. It doesn’t matter if that beneficiary is now an ex-spouse; he or she is still a beneficiary.
- Consider reviewing your beneficiaries annually. In addition, consider your beneficiaries in the case of family births, deaths, marriages, and divorces.
- Consider naming contingent, or secondary, beneficiaries, especially if you’re married, since the chances of something happening to and your spouse, together, are higher than, say, a friend who is named as a primary beneficiary.
- Some beneficiary designation forms are interpreted as pro rata, which means the assets are divided among the remaining listed beneficiaries. In some beneficiary designations a per stirpes designation is possible. In those cases, assets pass on to descendants of heirs.
- Naming beneficiaries can avoid probate for the assets. Probate can add additional time and cost to the process of distributing your assets.
- You can name a trust as a beneficiary, but you’ll definitely want to work with legal counsel on this to make sure the trust has the correct language to give your heirs—and possibly their guardians– appropriate flexibility.
This information is not intended to be a substitute for individualized legal advice. LPL Financial does not provide legal advice.