How Awesome Is It to Inherit a 401(k) Account?

Everywhere you look, you see evidence that the young generation has more obstacles to financial stability than their parents had. News headlines sound the alarm about how homeownership is out of reach for buyers under 40 unless they inherit a house from their parents, or unless their parents give them money for a down payment. One of the earliest signs of the erosion of financial stability is the scarcity of jobs where employers provide 401(k) accounts for employees. If you have an employer-provided 401(k) retirement account, you will likely retire with more savings than anyone except those whose employment income is much higher than yours and those who inherited a lot of money or valuable property. Your employer-matched 401(k) contributions will free up funds for you to buy long-term care insurance, pay off your house, and otherwise be in a position that will make your children breathe a sigh of relief and estate planning lawyers want to give you a high five. There is also a chance that, with your retirement expenses so low, there will still be money left in your 401(k) after you are gone. For help ensuring that the afterlife of your 401(k) account goes smoothly, contact a Dade City estate planning lawyer.

Are 401(k) Accounts Probate or Non-Probate Assets?

When you open a 401(k) account, you have the option to designate a transfer on death (TOD) beneficiary; you can also add or change the beneficiary at any point thereafter. If you do not designate a beneficiary, then the 401(k) account is a probate asset. It will become part of your estate when you die, and your will or the laws of intestate succession will determine which of your heirs get the money when your estate settles.

If you designate a beneficiary, the 401(k) account becomes a non-probate asset. This means that, like trust assets or life insurance payouts, it does not become part of your estate. The beneficiary does not have to wait until your estate settles before inheriting the account.

How Can Beneficiaries of 401(k) Accounts Claim the Money?

To take possession of a deceased person’s 401(k) account, the beneficiary must present the original owner’s death certificate to the financial institution that holds the account. If the beneficiary is of any relation to the original owner other than the original owner’s spouse, then the only choice is for the beneficiary to withdraw the money, which becomes the beneficiary’s taxable income. Depending on how much money the beneficiary needs in the short term and what the tax obligations will be, the beneficiary can withdraw the money as a lump sum or in installments, but he or she must withdraw all the money within ten years of the beneficiary’s death. If the beneficiary is the original owner’s spouse, the beneficiary can withdraw the money, keep it in the 401(k) account indefinitely, even designating a new beneficiary to get the account after the surviving spouse dies, or merge it with his or her own pre-existing 401(k) account.

Contact a Florida Estate Planning Attorney About Estate Planning

An estate planning attorney can help you plan for the succession of your 401(k) account.  Contact The Law Office of Laurie R. Chane in Dade City, Florida to discuss your case.

Source:

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