How to Transfer Retirement Savings If You Die


When people think about retirement, their top concern is usually whether they will have enough money to live comfortably. Unfortunately, though understandably, they often forget about their eventual death, but building retirement savings isn’t just about making money — it’s also about protecting it. To make life as easy as possible for your loved ones after you have died, you should ensure you have set things up correctly.

Spouse vs non-spouse beneficiary

Sonya Stinson, contributing reporter for Bankrate.com, says that the main considering is simple: who do you really want to get your money? “For most married people, leaving the account to a spouse makes the most sense,” she answers in a March 2010 article.

Your surviving spouse has the most flexibility with what they can do with an IRA or 401(k), such as rolling the account over into their own retirement account or treating it as their own without any tax penalties. You will also need a notarized signature from your spouse if you are married and wish to leave your retirement plan to someone else, though they’ll have fewer benefits.

“Non-spouse beneficiaries cannot roll over an inherited IRA into their own account, nor can they treat the IRA as their own,” Bill Fay writes for Debt.org. “In addition, non-spouse beneficiaries could be liable for paying estate taxes if the value of the retirement account plus other inherited assets exceeds estate tax exemptions.”

It is likely a better choice to name anyone — whether it is your spouse, your children or even a charity — than to name no beneficiary at all. Fay advises that if there is no beneficiary when you die, the law lumps the money into the general estate. What happens to your hard-earned money in that case will be decided by a court system, and it could fall in the wrong hands.

Name a trust as your beneficiary

Naming a trust as their beneficiary is a common strategy for those concerned that their heir can’t be fully trusted with the money. “That might be a minor child, a spendthrift or the spouse of a 2nd marriage,” says Sheyna Steiner in a January 2016 article for Bankrate.com. “In the last instance, a trust is often set up for those who want to leave enough money for the care of their spouse and then direct any remaining funds to go to their children after the spouse passes.”

Designing a trust, however, is a complex process fraught with possible complications. Denise Appleby, founder and owner of Appleby Retirement Consulting, strongly recommends consulting with a competent attorney or estate planning professional for assistance. She advises that designating a trust “is effective only if all the parties involved—especially the IRA owner, the IRA custodian, the trustee of the trust and any attorneys representing the beneficiary—agree on the interpretation of the provisions of the trust and applicable laws,” Appleby writes in a May 2018 article for Investopedia, before adding that conflicting interpretations could lead to a delay in the arrangement of assets and to frustration for all those involved.

Stay up to date on your paperwork

It is critical that you keep your paperwork up to date throughout your life. Some of the bitterest family feuds occur when a loved one dies whose intentions, though perhaps known among a few in private, had not been put down in writing. “With each major life event—a marriage, the birth of a child or grandchild, a divorce, the death of a close family member—you should review your beneficiary form and update it if needed,” Stinson advises.

Drawing up a perfect plan in case you die is no easy task. To ensure you get everything right, work with a professional and revisit and update your will throughout your life.

 

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