MONEY HACKS: How Important is Your 401(k) Beneficiary Designation?

Did you know you could accidentally “disinherit” your children from receiving your beneficiary benefits? Many investors are unaware that the Employee Retirement Income Security Act of 1974 (ERISA) (and that law states) indicates if your spouse outlives you, they will obtain your retirement plan funds— even if you have put your children down as your named beneficiaries. In this Kiplinger article, You Could Accidentally Disinherit Your Children Unless You Follow This Obscure Rule, Mike Piershale shares the story of a father that passed away thinking his kids would receive his nearly $250,000 401(k) funds but instead his wife of only six weeks was awarded the amount by the court. You can read the full article to learn more about the case – in the meantime, this Money Hacks episode stresses the importance of setting up and regularly reviewing beneficiaries for your financial accounts – such as your 401(k), 403(b), and IRAs!

Check out these resources:

• You Could Accidentally Disinherit Your Children Unless You Follow This Obscure Rule
  

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Video Transcript:

Hey, this is Alex with AFS 401(k) it's episode number 84 of Money Hacks. There was an article earlier this month, from USA Today Kiplinger with a pretty grabbing headline about accidentally disinheriting your children and its all-around retirement plan beneficiaries. This is something we've been talking about.

We were actually out doing group and one-on-one sessions yesterday, and one of the four things that I think you should look at every single year when it comes to your retirement plan, your 401(k) or 403(b) is to review your beneficiaries. I think that there's something like 40 or 50% of all investors across the country, that don't have a beneficiary election on file.

And, ultimately are leaving it up to whatever default provisions that plan has on how their assets are going to be disbursed if something were to happen to them. So, you must elect your beneficiaries, that in the unfortunate event, that something happens to you, the money that you've worked hard to save and accumulate for your long-term future goes to the people that you want it to go to, and review this regularly because at a federal level, if you are legally married, your spouse, as your default primary beneficiary, unless you have them sign the spousal waiver form, and so there've been instances and this article, the USA Today Kiplinger article cites this. You know, an individual who has a 401(k) account, their spouses, their beneficiary, they ended up getting divorced and they renamed their children their beneficiary. And then a few years later, they get remarried. Well, in that scenario, your new spouse automatically becomes your beneficiary, even though you'd fill out paperwork to identify your children as beneficiaries. The spousal arrangement supersedes that, and this has been tried in court, the USA Today Kiplinger piece highlights that.

So, it's just one example of many on why it's important to update your beneficiary as we're getting into the last quarter of the year. It's a great time to look at your retirement savings account, your overall long-term investment, and savings picture, and think about a few different action items, and one of those is reviewing, updating, or making that election for your beneficiary.

So, I hope this is helpful and, in the next session we can talk about the other three things you should be thinking about in that annual review of your 401(k), 403(b), or other retirement savings. Thanks! See you soon!