It is always a good idea to periodically review retirement account beneficiaries. However, it is especially important to do so when you experience a major life change, including marriage.
I have seen people who have not updated their retirement account beneficiaries to include their new spouse, even after being married for years. If they had died prior to updating their beneficiaries, their retirement account would not go to their spouse.
What is a retirement account beneficiary?
As in its name, a retirement account beneficiary receives the account after the account holder’s death. It is typically faster and more straightforward to have beneficiaries listed, as opposed to the account being transferred to the deceased account holder’s estate and then being distributed from there. There can also be adverse tax consequences to having a retirement account pass through an estate.
Filling out the beneficiary form
In order fill out a beneficiary form, you need personal information about each of your beneficiaries. This can include their name, DOB, and their relationship to the account holder. You also need to decide what percentage of the account each beneficiary will receive – the total for each class of beneficiary must equal 100%.
There can also be primary and secondary/contingent beneficiaries. The primary beneficiaries will receive the account, but if they die before the account holder, then the secondary/contingent beneficiaries will receive the account. It can get more complicated than this, but this is the general idea.
Per stirpes election
When completing a beneficiary form, you may also be asked if you would like to make a “per stirpes” or other kind of election. These are different methods to handle the distribution of the account. It is very important to know that the definition of "per stirpes" or any other election may vary depending on the institution holding the account, so the general definition may not apply perfectly in all situations. Regardless, generally, a “per stirpes” election means that if the beneficiary pre-deceases the account holder, the beneficiary’s portion will pass to the beneficiary’s descendants.
Again, because custodians may treat these elections differently, it is important to carefully read the beneficiary form – the forms will typically have an explanation of how they are defining the various terms.
If you have any comments, questions, or ideas for future posts, please let me know
I hope you found this post helpful and educational. If you have any comments, questions, or ideas for future posts, please let me know. You can reach me directly via email at crawford@ulmerfinancial.com.
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