You may not live long enough or have enough financial needs to use all the funds in your 401(k) account before you pass away. Your retirement savings will, in that case, pass on to the person you’ve named as the beneficiary of the account.
It is important to recognize that this is different from what you name in your will because 401(k) assets pass outside of probate, so you need to keep your beneficiary designation form completely up to date.
Select a primary and contingent beneficiary and update them after any major life events. Naming a beneficiary of a retirement account allows that person to receive your financial bequests without needing to go through the courts or access your financial documents or will. This makes it easier for your chosen beneficiary to receive these assets immediately.
Most people will choose relatives starting with the children or a spouse as their primary beneficiary. If you name multiple primary beneficiaries and one of them passes away before you, the assets inside the account at the time you pass away will be split proportionally among those remaining primary beneficiaries. An important component of this process is selecting a contingent beneficiary.
This is the person who will receive the assets if something happens to your original primary beneficiary who was set to receive 100% of the items. You can also list each beneficiary separately in the percentage of assets you wish for them to receive.
Contact our Pasadena estate planning law firm for more information.