What is a Retirement Account?
A retirement account, typically referred to as an Individual Retirement Account (IRA), is a form of “individual retirement plan”, provided by many financial institutions, that provides tax advantages for retirement savings in the United States.
What is a Retirement Account Beneficiary?
A retirement beneficiary can be any person or entity the owner chooses to receive the benefits of a retirement account or an IRA after he or she dies. Beneficiaries of a retirement account or traditional IRA must include in their gross income any taxable distributions they receive. IRA beneficiaries are typically inherited from spouses or from parents who wish to pass on their assets to their children.
What kind of benefits can I transfer into an IRA?
Typically, any assets can be transferred into an IRA. Retirement plans, 401k and any other financial assets can be transferred into an IRA for a beneficiary to later claim. However, there are limitations for an IRA, just as there are for everything else. Life insurance, forms of derivative trade (a contract between two or more parties whose value is based on an agreed-upon underlying financial asset (like a security) or set of assets (like an index)), and collectable antiques, no matter their worth, cannot be transferred into an IRA. Also, real estate for personal use (i.e. renting out for income) cannot be transferred in, as well as coins made of certain materials (gold, precious metals, etc.).
Do I Decide Who Gets the Money?
If you are divorced, remarried or have children from a previous relationship, make sure you have updated the beneficiary designation for your retirement plan at work. Otherwise, your spouse or kids could be in for a shock.
A shock is exactly what William Kennedy gave his daughter, Kari. The elder Kennedy married Kari’s mom in 1974 while working for DuPont. He named his wife as the beneficiary of his 401(k), and with no children at the time, he left blank the contingent beneficiary (who would get the money if the wife died first).
When the couple divorced in 1994, his ex-wife agreed to relinquish any rights to the money in the plan so that Kari would receive the money. But William did not sign new papers at work to officially change his beneficiary designation. So when he died in 2001, DuPont gave his ex-wife the proceeds — $400,000.
Kari sued DuPont, arguing that it violated the divorce decree by giving the money to her mother. The case made it all the way to the Supreme Court, which recently ruled in favor of DuPont. The court noted that Kari could sue her mother based on the divorce agreement, but that won’t do her any good. The majority ruled that DuPont acted in accordance with ERISA, the law governing retirement plans, which stipulates that beneficiary designations trump all other agreements. She told her hometown newspaper The Enterprise that her mother died in 2007 after moving to Norway and spending all the money.
Why Should I Open A Retirement Account?
It’s not enough to sign a contract or write a will. If you want someone to be the heir of your retirement plan at work, you must stipulate your instructions in the trust documents. Have you done your estate planning lately? Have you reviewed your beneficiary designations lately to make sure that the people you want to get your money are really the people who will get your money? If you haven’t done so recently, go to your attorney and do your estate planning properly.