If you have switched jobs, become a new parent, been divorced, or survived a spouse or even a
child, your current beneficiary designations may need to be updated.
Many investors have taken advantage of pretax contributions to their company's employer-sponsored
retirement plan and/or make annual contributions to an IRA. If you participate in a qualified plan program
you may be overlooking an important housekeeping issue: beneficiary designations.
An improper designation could make life difficult for your family in the event of your untimely death by
putting assets out of reach of those you had hoped to provide for and possibly increasing their tax burdens.
Consider the "What Ifs"
In the heat of divorce proceedings, for example, the task of revising one's beneficiary designations has been
known to fall through the cracks. While a court decree that ends a marriage does terminate the provisions of
a will that would otherwise leave estate proceeds to a now-former spouse, it does not automatically revise
that former spouses beneficiary status on separate documents such as employer-sponsored retirement
accounts and IRAs.
Many IRA owners may not be aware that after their death, the primary beneficiary -- usually the surviving
spouse -- may have the right to transfer part or all of the IRA assets into another account. Take the case of
the IRA owner who has children from a previous marriage. If, after the owner's death, the surviving spouse
moved those assets into his or her own IRA and named his or her biological children as beneficiaries, the
original IRA owner's children could legally be shut out of any benefits.
Also keep in mind that the law requires that a spouse be the primary beneficiary of a 401(k) or a profit-
sharing account unless he/she waives that right in writing. A waiver may make sense in a second marriage -
- if a new spouse is already financially set or if children from a first marriage are more likely to need the
money. Single people can name whomever they choose. And nonspouse beneficiaries are now eligible for a
tax-free transfer to an IRA.
The IRS has also issued regulations that dramatically simplify the way certain distributions affect IRA owners
and their beneficiaries. Consult your tax advisor on how these rule changes may affect your situation.
To Simplify, Consolidate
Elsewhere, in today's workplace, it is not uncommon to switch employers every few years. If you have
changed jobs and left your assets in your former employers' plans, you may want to consider moving these
assets into a rollover IRA. Consolidating multiple retirement plans into a single tax-advantaged account can
make it easier to track your investment performance and streamline your records, including beneficiary
Review Your Current Situation
If you are currently contributing to an employer-sponsored retirement plan and/or an IRA contact your
benefits administrator -- or, in the case of the IRA, the financial institution -- and request to review your
current beneficiary designations. You may want to do this with the help of your tax advisor or estate
planning professional to ensure that these documents are in synch with other aspects of your estate plan.
Ask your estate planner/attorney about the proper use of such terms as "per stirpes" and "per capita" as
well as about the proper use of trusts to achieve certain estate planning goals. Your planning professional
can help you focus on many important issues, including percentage breakdowns, especially when minor
children and those with special needs are involved.
Finally, be sure to keep copies of all your designation forms in a safe place and let family members know
where they can be found.
This communication is not intended to be tax or legal advice and should not be treated as such. Each
individual's situation is different. You should contact your tax or legal professional to discuss your personal