3 Tips for Choosing a Beneficiary on Your 401(k)

It’s never too early to plan for the future — even that part of the future that might not include you anymore. In order to make what could potentially be a very stressful time for your family easier, be sure to tie up all your loose ends when it comes to Estate Planning. This includes identifying beneficiaries for all of your investments and assets — including your 401K.

When you are first signing up for your 401K, your provider asks you to list a beneficiary. This might be an easy choice at the time — perhaps you set up your 401K when you were first married, so your wife was automatically listed. You may have created your 401K when you were a single woman, and you listed a sibling as your beneficiary and haven’t thought about it since. This is the time to make sure that the correct beneficiary is named.

Tips for choosing a 401K beneficiary:

1. If you are married, there are several legalities to consider. federal law dictates that if you are married, your spouse is automatically the beneficiary of your 401K. In order to list a different beneficiary, you must get a waiver signed by your spouse that states that he/she is aware that he/she is no longer the beneficiary of your 401K and acknowledging the identity of the new beneficiary. This waiver must be completed in writing. Remember, if you separate from your spouse but are not legally divorced, your spouse still will be considered the beneficiary of your 401K unless a waiver has been signed.
2. If you are single, your 401K account and benefits will go to your listed beneficiary. You also can choose not to list a beneficiary, in which case your 401K account and benefits become part of your estate. Remember, if you are a single parent you are able to list your children as your beneficiaries. Please be aware that if you happen to remarry, your spouse automatically becomes the legal beneficiary unless he/she signs a legal waiver indicated he/she recognizes that the children are the beneficiaries of the account. It is important to remember that a prenuptial agreement may not be admissible in court regarding this matter, so a waiver is important if you want your children to be the beneficiaries on your account.
3. If the children you are listing as beneficiaries are minors, note that many financial institutions will not transfer a large sum of money directly to a minor child. A court would have to appoint or name a trustee for the money, which can take time and become a legal hassle for your family and young children unless it is planned out prior to your death. It is best to think of someone ahead of time to list as a Trust, and then list that Trust to benefit your children.

Whether you are 25 or 85, it’s important to make sure that these legal documents are completed properly, because death doesn’t always come at expected or convenient times.

If you have questions about updating your legal documents, contact California Document Preparers at one of our three Bay Area locations. We’re here to help.