Personal Retirement Accounts and Family Beneficiaries

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 What Is a Personal Retirement Account and How Does it Impact Beneficiaries Who Are Family?

The phrase “Personal Retirement Account” covers a variety of retirement accounts an individual might use to have assets available upon retirement. The account may be associated with a person’s work as a benefit of their employment. Prepping for retirement is essential. Nonetheless, the account owner does not always take retirement and use account funds due to untimely death or incapacitation that stops them from making decisions.

When this painful crisis transpires, the account owner’s account funds (and their other assets) go to other individuals, most often, their partner or perhaps their kids, depending on the circumstances. Many rules can influence this procedure, as estate planning is a complex branch of the law.

To have the funds from their personal retirement account go to a partner or other family member, the account owner should name their appointed persons as beneficiaries of the account. Commonly, when the owner enrolls in the account, they will be prompted to name their beneficiaries, so it will be obvious who has a right to the assets upon the owner’s death or incapacitation. Naming a beneficiary permits the personal retirement account to evade going through the probate process, as most assets must do.

What Are Some Different Types of Personal Retirement Accounts?

There are various styles of retirement accounts people may use to save funds and prepare for retirement. Some of these include:

  • 401(k)s: These are retirement accounts associated with the account owner’s employment. Many employers offer a 401k as an employee benefit. The worker specifies a particular portion of each paycheck that automatically goes into the 401k. The employer may match the contributions.
  • Pension plans: These are usually employment-related, with employers providing contributions. They are based on years of service. For instance, after serving as a public school teacher for 30 years, the teacher may retire and receive monthly pension payments.
  • IRAs: These are not necessarily employment-related. An Individual Retirement Account, or IRA, supplies another way to invest funds to prepare for retirement.
  • Social Security benefits: Except in the case of disability, an individual must reach the age of at least 62 to obtain social security benefits accrued through years of working and paying taxes. These benefits may also pass to a spouse, children, or other family members. There are prerequisites to this, including the spouse’s age (typically, at least 60) and children (generally, under 18), for them to obtain the benefits.

It’s essential to update your beneficiaries in an event such as remarriage to ensure that the funds go to the person you truly wish them to go to.

What Does the Law Have to Say About Retirement Accounts and Beneficiaries?

The basic rules cited above are just that: basic. Each of the different accounts cited may have more intricate regulations that their owners and beneficiaries should be aware of. A 401k, for instance, may demand that the account owner’s spouse be designated as their beneficiary. If the owner wants to designate someone else, they might have to get their spouse, if they have one, to waive their rights as a beneficiary in writing.

With an IRA, the beneficiary can be whoever its owner selects. Regardless, there are other restrictions associated with IRAs. For example, only the account owner’s spouse may choose to roll their deceased or incapacitated spouse’s IRA over into their own IRA, combining the two accounts. This permits them to keep accruing for their retirement. If the beneficiary is not a spouse, this is not an option, and they must take the benefits as the plan specifies.

Due to these complexities, it is crucial to know the law regarding any personal retirement account you may hold. This allows you to be sure of how your funds will be handled in the event of your death. A lawyer can help with these matters.

An account holder must provide information when enrolling in a personal retirement account. This usually comprises such information as:

  • The beneficiary’s name and contact information
  • The account number
  • What type of benefits you receive, and in what amount
  • The name of the financial institution that oversees the account

What Are 401(ks) and Pension Plans?

For some kinds of retirement accounts, such as 401(k)s and most pension plans, the law demands that you designate your spouse as your beneficiary unless they sign a form that gives up this privilege. For other accounts, such as IRAs and employer profit-sharing retirement plans, you are unrestricted to name any beneficiary you desire. Keep in mind that if you live in a community property state (such as California), your spouse is automatically qualified to half of any money in the retirement account that you acquired while married. If you and your spouse do not want to leave all of your retirement accounts to each other, you should examine the laws in your state and strategize accordingly.

Individuals often bypass probate court for much of their property by setting up a living trust and naming the trust as the beneficiary for many objects. Yet, many retirement accounts are already exempt from probate regulations, so there is no point in naming the trust as the beneficiary. If you name the trust as the beneficiary of your retirement funds, you may specify what your actual beneficiaries can do with the money.

Social Security Benefits After Death

Your surviving family may be qualified to accept your Social Security benefits after your death if they meet specific requirements. Often, your family members may obtain the full retirement amount that you would have obtained.

For your spouse to qualify to receive your Social Security benefits, they must be:

  • At least 60 years old; or
  • At least 50 years old have been disabled; or
  • Any age if your spouse is caring for your child under 16 years old or is disabled and accepts Social Security benefits.

For your children to be qualified to obtain your Social Security benefits, they must be unmarried and:

  • Less than 18 years old; or
  • Between 18 and 19 years old and attending elementary or secondary school full time; or
  • Over the age of 18 but severely disabled, with the disability commencing before they turned 22.

Other individuals can qualify as beneficiaries of your Social Security benefits, like your parents dependent on you, your divorced spouse, your grandchildren, and your stepchildren.

Is it a Wise Idea to Create a Living Trust for My Personal Retirement Account To Bypass the Probate Process?

The probate process is the procedure a deceased person’s assets must go through by being taken care of in probate court if there is no will to determine the distribution of assets. The outcomes of this process can be in stark contrast to what the departed (and their beneficiaries) would have desired. This type of trust attempts to avoid probate.

Should I Hire an Attorney For Help with My Personal Retirement Accounts?

These types of accounts are beneficial not only to their holders but, possibly, to their beneficiaries. They can help take care of family members in the event of your death. If you have questions or concerns about a personal retirement account or want to establish one, you may get a local estate attorney for help.

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