When choosing a beneficiary for a retirement plan, it’s important to understand how your surviving spouse will be treated under the plan. The rules are different for 401(k)s and IRAs.With a 401(k) plan, a surviving spouse is the automatic beneficiary of the plan.
If you want to name someone other than your surviving spouse as a beneficiary,your surviving spouse must agree to this in writing. There are some exceptions; for example, the rule might not apply if you and your surviving spouse have been married for a very short time. But in general, it’s a strict rule. In fact, even if your surviving spouse signed a prenuptial agreement saying that he or she has no right to your 401(k), that might not be good enough, because he or she wasn’t your “spouse” or surviving spouse at the time of the signing.
On the other hand, this rule is not true for an IRA. Surviving spouses are not automatic IRA beneficiaries. In a recent case, a husband rolled his 401(k) into an IRA after he retired. He named his children as the IRA’s beneficiaries. After he died, his wife claimed that she was entitled to the account funds as his surviving spouse. The surviving spouse argued that because her husband had rolled his 401(k) into the IRA, she as the surviving spouse should receive the same protections that the 401(k) had given her.
But a federal appeals court in California disagreed,deciding that the IRA rules applied even if the funds originated in a 401(k). In general, whether you have a 401(k) or an IRA,it is important to regularly check your beneficiary designations to make sure they are current and the same as the rest of your estate plan.
Therefore, it is extremely critical to review beneficiaries and references to your surviving spouse as it relates to your 401(k) or IRA plan.
