Question:
I want to name my child from a previous marriage (age 15) the beneficiary of my 401(k) rather than my current spouse. Does this pose any problems?
Answer:
First, defined benefit plans, such as your 401(k), require spousal consent to change the beneficiary per ERISA rules, meaning your spouse would have to sign off on the change. That said, ERISA also governs how plans are passed to beneficiaries, which means the beneficiary designation trumps any direction left in your will. If your child inherits your assets in a trust, and is named beneficiary of the 401(k), those 401(k) assets will go directly to the child and bypass the trust. Essentially, if you were to die, the assets would be converted to an inherited IRA and the beneficiary would have to take distributions based on their life expectancy. While a minor, the child’s guardian would likely handle the distributions. However once that child reaches the age of majority, he or she could empty the account and spend the money as he or she wishes. The unfortunate truth is most 18-year-olds are not that responsible with money.
You would be better served naming a trust as the beneficiary, and naming your child the beneficiary of the trust. That way you could dictate from beyond the grave, when your child would have full access to the funds.
At Henssler Financial we believe you should Live Ready, and that includes understanding how your assets are transferred after your death. If you have questions:
- Experts Request Form
- Email:experts@henssler.com
- Phone: 770-429-9166.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
