Gold diggers are shameful. At least in my view, anyway. The idea that someone (female or male) could marry and try to extract as much out of the other person as possible, is a different way of thinking than I possess. Did you know that even one’s retirement fund could be at risk, as 401(k) inheritance rules provide loopholes for some unintended and surprising consequences to occur?
The idea that 401(k) inheritance rules are not 100% clear to everyone is probably something that should be changed, with a little more visibility put on the subject. Which is what I’d like to do here, after reading a recent article in the WSJ that shared a few eye opening stories on 401(k) plans and IRAs with respect to beneficiaries and legal rights.
Here are the rules:
- If you have a 401(k) and are married: If you die, your spouse is assumed to be the beneficiary. Now, you may have actually named someone else to be the beneficiary. However, unless your spouse consents to having another person be named, he or she will be the beneficiary, regardless of who you named.
- Why it matters: somebody marrying later in life could actually want to give his/her hard-earned money to a grown child. However, even if the adult child is named a beneficiary, a new spouse could claim all the money while the kid gets shut out of the 401(k) funds of the parent. Gold diggers or those with an unfair sense of entitlement could trump the true wishes of the person who actually earned the money prior to the new marriage.
- Solution: to make sure that the intended beneficiary gets the assets, it might be worth considering rolling over the 401(k) into an IRA when possible. IRAs are impacted by state laws, as opposed to 401(k) plans, which are governed under federal legislation. Generally, in many states, you can name anybody to be the beneficiary of your IRA – and you don’t need your spouse’s consent. Thus, a person could name their own children without any subsequent issues, unless restrictions apply in certain states.
- Why it matters: somebody originally assigning one person as the beneficiary on the form, yet subsequently naming a second person as the person who will inherit the funds based on a will, will find that his/her money will go to the first person. This means that what’s on the beneficiary form trumps what’s in a will or in other documents.
- Solution: to ensure that the intended beneficiary actually inherits the assets, make sure to have the beneficiary actually noted as such on the account paperwork, with the prior beneficiary removed.
Now, I’m not going to pretend to be an expert on estate law, so please contact a professional for exact details before making decisions. I just wanted to bring the topic to light because I’m not sure how many people really know what these rules are. Of course, most people don’t want to be in a position to have to deal with such issues in life. However, life can take twists and turns, and it’s good to know that what might seem to be common sense and fairness doesn’t necessarily mean as much in terms of actual practice. It’s best to be informed!
In considering the examples given in the article I referenced above, it’s really incredible how some of these things work. People only married for short periods of time can inherit tons of money, while adult children can be disinherited due to what amount to clerical issues trumping heartfelt intentions. Or, ex-spouses – years after a divorce – claiming retirement money and overriding other agreements by calling on clerical technicalities. Remarkable. I couldn’t imagine trying to circumvent the real wishes of somebody. I mean, in my view, adult children should have priority over a brand new spouse of somebody later in life, don’t you think?
My Questions for You:
Were you aware of how these rules worked?
Do you know of any cases where inheritances were disputed among family members?
Are you with me in supporting adult children as the top priority for assets earned prior to the new marriage?