The term “Personal Retirement Account” covers a variety of retirement accounts an individual might choose to use in order to have assets available upon retirement. The account may be associated with a person’s work, as a benefit they receive for their employment. Preparing for retirement is important. However, the account owner does not always end up taking retirement and using account funds for themselves, due to untimely death, or incapacitation that prevents them from making decisions.

When this unfortunate situation occurs, the account owner’s account funds (as well as their other assets) go to other people, most often, their spouse or perhaps their children, depending on the circumstances. There are many rules that can affect this process, as estate planning is a complicated branch of the law.

In order to have the funds from their personal retirement account go to a spouse or other family member, the account owner should name their designated persons as beneficiaries of the account. Typically, when the owner enrolls in the account, they will be prompted to name their beneficiaries, so it will be clear who has a right to the assets upon the owner’s death or incapacitation. Naming a beneficiary allows the personal retirement account to avoid going through the probate process, as most of their assets must do.

What are Some Different Types of Personal Retirement Accounts?

There are a variety of different types of retirement accounts individuals 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 employee designates a certain portion of each paycheck that automatically goes into the 401k. The employer may match the contributions.
  • Pension plans: These are also usually employment related, with employers providing contributions. They are based on years of service. For example, after serving as public school teacher for 30 years, the teacher may retire and start receiving pension payments each month.
  • IRAs: These are not necessarily employment-related. An Individual Retirement Account, or IRA, provides another way for an individual to invest funds to prepare for retirement.
  • Social Security benefits: Except in the case of disability, an individual must attain the age of at least 62 to receive social security benefits accrued through years of working and paying taxes. These benefits may also pass to a spouse, children, or possibly other family members. There are conditions to this, including the age of the spouse (generally, at least 60) and children (generally, under 18), in order for them to receive the benefits.

It’s important to update your beneficiaries in an event such as remarriage, in order 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 mentioned above are just that: basic. Each of the different types of accounts mentioned may have more complex rules that their owners and beneficiaries should be aware of. A 401k, for example, may require that the account owner’s spouse be named as their beneficiary. If the owner wants to name 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 it’s owner chooses. However, there are other rules associated with IRAs. For instance, only the spouse of the account owner may choose to roll their deceased or incapacitated spouse’s IRA over into their own IRA, combining the two accounts. This allows them to keep accruing for their own retirement. If the beneficiary is not a spouse, this is not an option, and they must take the benefits as the plan designates.

Due to these complexities, it is important to know the law regarding any type of 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 or incapacitation. A lawyer can assist with these issues.

There is information an account holder must provide when enrolling in a personal retirement account. This usually includes 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 manages the account

Is It A Good Idea to Make a Living Trust for My Personal Retirement Account In Order to Avoid the Probate Process?

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

This isn’t really necessary, though, with personal retirement accounts. The naming of the beneficiary avoids this process, and most retirement accounts are exempt from probate even if the deceased’s other assets are subject to it.

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 contact a local estate attorney for assistance.