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The Importance of a Beneficiary Designation for Retirement Accounts

Do you have a retirement account such as an IRA, 401(k), 403(b), or 457 plan? If so, this blog offers you one of the most important yet simple estate planning tips you should know about -- and the best part is that it will not cost you a dime to update!

Your retirement plan accounts are separate and apart from your Will and Revocable Living Trust

Retirement plan assets, unlike all of the other assets you own, require special attention regarding the beneficiary designation.  This is because the terms and provisions of  your Will and Family Trust will not, and cannot,  dictate where the retirement account assets go should you pass away. This seems to be a surprising fact to many people who thought that they had everything taken care of after their estate attorneys completed a well-drafted estate plan.

So what you need to do is to properly complete a beneficiary designation for each and every retirement plan account you own; the forms are usually available on the plan administrator or custodian's website.  Be sure to keep a copy of the forms in a safe place.

What happens if you fail to complete the beneficiary forms?

If you don't have a beneficiary designation in place with the plan administrator or custodian, then the "custodian agreement" or "plan agreement" will typically dictate how your retirement plan will be distributed. Suffice it to say, if you let the plan agreement decide who gets your retirement assets, there is a good chance that the default beneficiary will turn out to be your "estate" which could result in substantial taxes -- even an ex-spouse could get all the money if you are not vigilant!

Is this a one-time deal?

The answer is a resounding "NO"! The beneficiary designation of your retirement accounts should be reviewed periodically. As your life circumstances change, you will need to update the designation accordingly.

Nationally renowned retirement account planning expert, Robert Keebler, said: "All retirement plan estate planning begins at the beneficiary designation level".  Although the discussion on  how to properly prepare and complete a beneficiary designation is beyond the scope of this blog post, it is your professional advisor's job to help you avoid  any unwanted "surprises".  Keep in mind that there are many tax and estate consequences involved with distributing your retirement accounts.