Why Is It Important That I Name a Beneficiary for My Retirement Account?
Why Is It Important That I Name a Beneficiary for My Retirement Account?
This article was updated in November 2021.
When is the last time you checked to see who you named as the beneficiary on your retirement accounts, life insurance policies, and annuities? Many people neglect to update these beneficiary designations after a marriage, divorce, or other change in a family situation.
The problem with this? The beneficiary designation is a legally binding document, so regardless of your current relationship status, the asset will go to the person named in the beneficiary designation whenever you last updated it.
What Is a Beneficiary—and Why Is a Beneficiary Designation So Important?
A beneficiary is a person or entity (such as a trust) whom you designate to receive the money in your retirement account in the event of your death. Keeping your beneficiary information current is a good idea; it can help to ensure that your retirement benefits will be distributed according to your wishes.
If you die without having made a valid beneficiary designation, your retirement account will be distributed as stipulated by state law or according to your Plan’s hierarchy for the payment of death benefits. Check your plan documents or consult a legal advisor for more information.
Many financial professionals suggest that individuals review their beneficiary information periodically—and especially following life changes, such as marriage, divorce, or the death of a loved one. You can update your Retirement Plan beneficiary on a new Beneficiary Form.
Properly Making Your Beneficiary Designations
If you are married and select someone other than your spouse as your beneficiary, your spouse will have to acknowledge that they are waiving their benefit, and consent to this by signing the beneficiary form in front of a notary public.
If you are considering naming a minor child as your beneficiary, keep in mind that retirement plans generally will not pay death benefits to a minor. A guardian, trust, or trustee should be named as a beneficiary to provide competent management of the proceeds for children. Legal advice is suggested to review your specific situation.
How to Review Beneficiary Designations
Make a list of each retirement account, life insurance policy, and annuity you have. Add two columns to the list; one for the beneficiary and one for the date.
For each account, write down the beneficiary and the date it was last updated. Keep this list in a binder or file along with your other important documents. Regardless of any changes, make it a habit to pull out this binder once a year and review the information.
Aldrich Wealth is here to help you protect and grow your financial assets, and we’d love to talk with you today.
