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Who's Getting Your Money?

It’s estimated that about $24 trillion is saved in various types of retirement accounts, but where is that money eventually going?  In most cases, the beneficiary designations will determine who receives the funds.  But what happens when the designations are out-of-date?

  • In the case of 401(k) accounts, federal law requires that the surviving spouse receive the account, even if someone else is named the beneficiary, unless the spouse has signed a waiver of his or her rights prior to the account owner’s death.  This can be important where a couple with children from prior marriages are heading down the aisle, even if the couple has signed a prenuptial agreement.

  • If the named beneficiary of an IRA or 401(k) account has died, the secondary beneficiary would take the funds.  If there is no secondary beneficiary, the account would be distributed to the estate, which may result in income taxes being owed immediately.

  • Even an ex-spouse may be entitled to the account if he or she is still listed as the beneficiary.

If you’ve forgotten who you named as beneficiary on your accounts or if your family situation has changed, now would be a good time to revisit those designation forms.  Simply ask the IRA custodian or your employer for the papers necessary to make the changes.  You might also want to check with your financial adviser about the most tax-efficient ways of passing the accounts to family members.  Keep in mind that you can name charity as a beneficiary, completely bypassing the income tax that other beneficiaries will owe.  It’s even possible to provide lifetime income to family members from assets passing to charity.


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