Are You a Legal Professional?

Personal Retirement Accounts and Your Family

There are two primary reasons to record your family in your personal retirement accounts.

First, after your death, you want to make sure that your family has the right to claim any benefits that are due and owing to you from your retirement account. Second, if you become legally incapacitated and can no longer function enough to claim and manage your benefits from your retirement accounts, then you will want to make sure you appoint someone to be in charge, typically a family member.

In order to make any necessary tasks for your family easier, you should always maintain a folder that contains information about any personal retirement accounts, pension plans, Social Security benefits and annuities. By keeping such a folder, you make it that much easier for your family to keep track of your financial affairs.

This article is designed to lay out what happens to your retirement accounts and other benefits after your death, and it provides suggestions for making personal retirement accounts easier for your family to deal with.

For more information on retirement accounts, see The Advantages of an Inherited Roth IRA, and A Look at 401(k) Plans for Employees.

Retirement Accounts after Death

In most retirement account plans, there is an option for you to name a beneficiary. The beneficiary is the person that you appoint to receive any benefits left over in your retirement account after your death (it is easiest to appoint a beneficiary of your personal retirement accounts here rather than in your will). If you die with money remaining in your retirement account, the person you named as beneficiary will receive the benefits left over in the account without having to go through probate court.

401(ks) and Pension Plans

For some types of retirement accounts, such as 401(k)s and most pension plans, the law requires that you name your spouse as your beneficiary unless he or she signs a form that gives up this right. For other accounts, such as IRAs and employer profit-sharing retirement plans, you are free to name any beneficiary that you wish. Keep in mind that if you live in a community property state (such as California), your spouse is automatically entitled to half of any money in your retirement account that you earned while married. If you and your spouse do not want to leave all of your retirement accounts to each other, you should research the laws in your state and plan accordingly.

One way that people often avoid probate court for much of their property is to setup a living trust and name the trust as beneficiary for many items. However, many retirement accounts are already exempt from the probate laws so there is no point in naming the trust as the beneficiary. If you do name the trust as the beneficiary of your retirement funds, you may be restricting what your real beneficiaries can do with the money.

Social Security Benefits after Death

Your surviving family members may be eligible to receive your Social Security benefits after your death if they meet certain requirements. Oftentimes, your family members may receive the full retirement amount that you would have received.

In order for your spouse to qualify to receive your Social Security benefits, he or she must be:

  • At least 60 years old; or
  • At least 50 years old have be disabled; or
  • Any age if your spouse is caring for your child that is under the age of 16 years old or is disabled and receiving Social Security benefits.

In order for your children to be eligible to receive your Social Security benefits, they must be unmarried and:

  • Less than 18 years old; or
  • Between 18 and 19 years old and attending elementary or secondary school full time; or
  • Over the age of 18 but severely disabled, with the disability starting before he or she turned 22.

There are other people that can qualify as beneficiaries of your Social Security benefits, like your parents that are dependent on you, your divorced spouse, your grandchildren and your stepchildren.

Get a List of All of Your Personal Retirement Accounts and Benefits

Procrastination can lead to a world of trouble for your family when it comes to your retirement accounts and benefits. Everyone should make a list of all of their accounts and benefits that they have and keep the list in a folder that at least one other person knows the location of. Making the list shouldn't take long and can save a lot of trouble down the road.

At a bare minimum, you should make a list of all of your retirement accounts and benefits, whether or not you are receiving payments from the account currently. This list should include things like:

  • Your employer-sponsored pension or retirement plans;
  • IRAs, including traditional, Roth, SIMPLE and SEP-IRAs; and
  • Keogh, employer profit-sharing plans, or 401(k)s you set up for being self-employed as a small business owner.

Then, for each account that you have in the list, mark down the following information in an easy to understand format:

  • The name of the entity that manages the account (such as a bank or financial manager);
  • The number of the account or some other way of identifying it;
  • Contact information (phone number, address) of the person in charge of your finances;
  • Whether you currently are receiving benefit payments and how much the payments are;
  • The beneficiary listed on the account; and
  • The location of your financial plan statements.

You should also include your Social Security benefits in this list as well.

Lastly, because financial plans and circumstances often change, be sure to look at this list AT LEAST once a year to be sure that it is up to date. If, for example, you start drawing more or less per month from your retirement account, you should indicate this.

Securing and Storing Your Documents and Information

The above list and any additional documents you are going to store together will probably contain some fairly sensitive financial information. Because of this, it is important that you store it in a secure location, like a lockable file cabinet or a fireproof safe. However, after you store it, or while you are doing so, you need to be sure to tell at least one person close to you about your storage place. In addition, if you have named an executor of your will or an agent to oversee the disposition of your property after your death, be sure that he or she will receive this information in a timely manner.

Get a Free Estate Planning Attorney Match

If you are thinking about a personal retirement account or any other estate planning matter, you'll want to be familiar with the laws of your estate and how that may impact your family. The best way to do that is to consult with a skilled estate planning attorney in your area. You can get started with a free attorney match at no obligation.

Next Steps
Contact a qualified estate planning attorney to help you ensure
that your loved ones are cared for and your wishes are honored.
(e.g., Chicago, IL or 60611)

Help Me Find a Do-It-Yourself Solution