If you are married, you have limited control over who gets your 401(k) distribution.
In short, your spouse receives all of your 401(k) if you die.
All of it.
It is the law.
A recent Kiplinger article, titled “What Happens to Your 401(k) When You Die–Like It or Not,” explains this law was signed by Ronald Reagan in 1984.
He wanted to protect the rights of a spouse so his or her partner could not sign away his or her survivor rights in retirement funds.
What are the specifics?
The rights of the survivor cannot be overturned by a mere contradictory beneficiary designation.
The only way this would not hold true is for the spouse to waive his or her right in writing.
Note: Waiving a right cannot be in a prenuptial agreement because a spouse must waive the right.
Again, if you are married, the right can only be relinquished with a signed waiver in writing.
What if it is an annuity?
If a retirement plan payout is taken as an annuity, the worker must have a plan designated to pay at least 50 percent of the original benefit amount to the surviving spouse.
Are there loopholes?
The would-be surviving spouse has less protection while the account owner is alive.
If the account owner leaves his or her job, the account owner may roll over up to $1 million to an IRA.
There are no death benefit protection rules governing IRAs for surviving spouses.
IRA beneficiary designations are contingent on whether your state is a community property or joint property state.
In community property states, permission from your spouse may be required you if plan to leave more than 50% of your IRA to a third party.
Otherwise, you can select whomever.
Although some plans require spousal permission for rollovers or certain distributions, it is uncommon with 401(k) plans.
Know the rules for your own 401(k) and those governing the plan of your spouse.
Also, if your single, none of this applies to you.
You can select whomever you wish.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.
Reference: Kiplinger’s (August 2016) “What Happens to Your 401(k) When You Die – Like It or Not”