Inheriting a 401(k) Account, What To Expect

If you have a 401(k) account, count your blessings. Homeownership is the most visible sign of financial stability, but 401(k) accounts count for a lot, too. A 401(k) account is an employer-provided retirement account; many employers match the employee’s contributions to the account up to a certain amount per year. Therefore, you can accumulate a lot more retirement savings by putting money into a 401(k) account than you would if you had put an equivalent amount from each paycheck into a personal savings account. Many seniors worry about outliving their retirement savings, if they have any retirement savings at all. By contrast, if you have a 401(k), you have a better chance than anyone else in the 99 percent that there will still be money left in your retirement savings when you are gone. Inheriting the remaining money in a 401(k) account of a deceased family member can be a boon to the beneficiary, but as with so many other aspects of retirement and estate planning, the more meticulously you prepare your documents, the easier it is for the beneficiaries of your estate plan. For help getting your 401(k) account into shape so that one of your family members can inherit it, contact a Bronx estate planning lawyer.

401(k) Accounts Are a Non-Probate Asset, Except When They Aren’t

A non-probate asset is one that passes directly to its beneficiary when the original owner dies, instead of becoming part of the original owner’s estate to be administered in probate court. Examples of non-probate assets are life insurance policies, trusts, and payable upon death (POD) accounts. 401(k) accounts are also a non-probate asset. You can designate the beneficiary when you open the 401(k) account or anytime afterward, and you can change the beneficiary an unlimited number of times. You should also designate a successor beneficiary in case the beneficiary you originally listed predeceases you.

If you do not list a beneficiary on your 401(k) account, the default beneficiary is your estate. This means that the money becomes a probate asset, and the beneficiaries of your will inherit it when your estate settles. It also means that the money will be vulnerable to creditor claims, so your heirs might not receive the full amount.

How Can Beneficiaries Claim the Money in an Inherited 401(k) Account?

When the original owner of a 401(k) account dies, the beneficiary does not automatically get a check in the mail. Instead, it is the beneficiary’s responsibility to contact the financial institution that administers the 401(k) account and present the original owner’s death certificate. If the beneficiary is not the original owner’s spouse, he or she may withdraw the funds in a lump sum or in installments, but the deadline for withdrawing all the funds is within ten years. If the beneficiary is the surviving spouse of the original owner, the surviving spouse can assume control of the 401(k) account or merge it with his or her own 401(k) account, or else withdraw the funds. Keeping the money in a 401(k) account has additional tax benefits.

Schedule a Confidential Consultation With a Bronx Estate Planning Attorney

A probate lawyer can help you incorporate your 401(k) account into your estate plan.  Contact Cavallo & Cavallo in the Bronx, New York to set up a consultation.

Source:

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