The Wall Street Journal lists the rules about who gets what for IRA’s and 401k’s – even if it’s not the intention. Often old documents are long forgotten. Subsequent agreements might be intended to make a change, but they actually don’t.
It’s very important to verify who’s named on those old forms. The legal rules can seem unreasonable.
Marital status matters:
If married at time of death:
1. 401K The spouse is beneficiary – regardless of who is listed on the beneficiary form with the 401k paperwork — unless he or she has previously consented to another beneficiary. A prenuptial agreement may not be enough for it to be otherwise.
2. IRA – You have more latitude on naming a beneficiary of your choice. Name anyone you choose. However, once you’ve named the person, it probably sticks until you change it. (Remember it could be a former spouse or a feuding relative.) If you want a new spouse to inherit or even children born since the original paperwork, be sure to submit a new form. State law rules rules, so community property states may have some restrictions.
3. IRA changes by a spouse – Federal law doesn’t require a spouse to be notified when a 401k is cashed in or it’s roll it into an IRA. Often this is done when changing jobs or retiring. This is a red flag and a danger that could leave nothing for a spouse expecting to inherit. The National Women’s Law Center has advocated to improve spouse protection but it remains a problem at this point for older women.
If single at time of death:
4. 401k The beneficiary is the person you named on the beneficiary form, regardless of your will or other agreements. Check on it because divorce agreements and waiving rights don’t matter either.
5. IRA – If your beneficiary was your spouse and you didn’t change it after you divored, in most states that designation is void. Your assets would pass to your estate if you haven’t filled out paperwork to designate someone else.
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