Have you updated your will lately? It’s something that’s easy to forget between making school lunches, shuttling children to numerous practices and helping with homework. But even if you remember to update your will, according to a recent report by Fidelity, there’s something else that you might have forgotten: updating the beneficiary on your 401K accounts.
Unfortunately, many people mistakenly believe their investments in their 401K accounts will be distributed according to the designations made in their will, but this is not true. In fact, according to Fidelity Investments, “what happens to your individual retirement account, 401(k) and other retirement savings often hinges on what you scribbled down, decades earlier, as you filled out a form designating your beneficiaries.”
Yikes, that might not be good news for thousands of investors who have had children, been divorced, remarried or wish to bequeath their assets in a manner quite differently than they would have wanted a few years out of college.
What happens if you don’t update your beneficiary forms?
Unfortunately, failing to update your retirement beneficiary forms can lead to what experts call a “bureaucratic nightmare.” In fact, there have been several stories of individuals who remarried and failed to ask their wife or husband to sign a waiver, neglected updating beneficiary forms, and as a result they effectively disinherited their children.
Others have accidentally designated their parents as beneficiaries because they opened the account when they were single. Another common mistake was accidentally cutting out one child’s heirs if the child died before they did. In this case, if it is not explicitly outlined, the heir’s settlement would be divided between the remaining children.
So what’s the bottom line? Although many Americans believe retirement savings will be divided according to the instructions in their will, they won’t. Individuals must designate their heirs on their beneficiary-designation forms.
What happens to 401k retirement accounts if I divorce?
What can be even more unsettling is what can happen to your retirement money if you have divorced but failed to update your beneficiary forms. In most cases if you mistakenly leave a former spouse designated as a beneficiary of your 401(k) they will receive those assets after you have died, regardless of the divorce agreement. Hopefully, a good divorce lawyer will bring this to your attention to your retirement accounts during the divorce process, but if not, it’s time to review your information.
What do the experts say about retirement accounts and distribution of assets? Although the process works fine most of the time, experts admit in some cases there is a huge problem. But now it’s time to protect yourself. If you have a will it won’t be enough. Contact your investment firm and find out who you designated as your beneficiary years ago and make sure the designation reflects your current desires for the distribution of your retirement savings.
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