018 – Changing Beneficiaries on Your Retirement Accounts
Your wife–or former wife–may have a legal claim to your retirement account, so if you decide that you do not want them to have access to your retirement account you will have to takes some steps to prevent it. People have very different reasons for wanting to leave their retirement accounts to someone other than their wives – good and not so good. The good reasons are sometimes related to estate planning or tax advice because both spouses have enough assets to live a comfortable life without inheritance from the other. The not-so-good reasons include trying to hide money or spend it before going through a divorce. So there are state and federal laws in place to protect those unsuspecting spouses.
To make sure your wishes aren’t thwarted, always get your spouse’s consent in writing before naming someone else as beneficiary. Written consent is always a good idea and may be required by law. Let’s look at a couple different types of plans:
A special rule applies to 401(k) plans and other “qualified plans” governed by federal law: Your wife is entitled to inherit all the money in the account unless she signs a written waiver, consenting to your choice of another beneficiary. It’s not enough just to name someone else on the beneficiary form that your employer gives you.
If your wife agrees to sign the waiver, which should be provided by the firm that administers the 401(k) plan, a plan representative or a notary public must act as a witness, and, a wife who does sign a waiver can withdraw that consent if you later name a different beneficiary, unless the signing spouse expressly gave up that right.
Individual Retirement Accounts (IRA)
If you don’t live in a community property state (Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), you are free to name whomever you wish as your IRA beneficiary, even if you’re married.
If, however, you live in a community property state, chances are your spouse automatically owns half of what you have socked away in a retirement account by reason of marriage. If any of the money you contributed was earned while you were married, that money remains “community property,” and your spouse owns half.
The money you contributed before you were married or money that you alone inherited or were given is not subject to this community property rule and is considered “separate property.” Or, if you have an agreement to the contrary, the money you earned is yours to do with as you please.
If the money in your retirement account is community property, and you want to name someone other than your spouse as the beneficiary, get your spouse’s consent in writing.
Without your spouse’s consent, your chosen beneficiary will be entitled to only half of what’s in the retirement account at your death.
What Rights do Former Spouses have?
If your former spouse’s name is still on a beneficiary designation form for any kind of retirement benefit, change it. You should not rely on a divorce decree that awards you your retirement account. If you fail to change the beneficiary designation your former spouse will end up inheriting the benefit. The plan administrators are required to disburse the funds to the beneficiary listed on the account – not to look at each case and determine who is most deserving of the benefit. You better go and double check your beneficiary designations right now! And while your checking out your retirement account beneficiaries, you ought to double check your life insurance beneficiaries as well.
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