Don’t forget your beneficiaries
When you enrolled in your retirement plan, you may have identified beneficiaries — namely, a primary and even a contingent beneficiary — for the assets in your account. But have you reviewed those designations since then? If not, here’s why it’s a good idea to do so now.
The beneficiary is the person or entity entitled to receive an account after the death of the owner (or, in the case of a retirement plan account, the participant).
Primary beneficiaries are the individuals chosen to first receive proceeds from a mutual fund account or retirement plan account. Contingent, or secondary, beneficiaries receive proceeds if there are no surviving primary beneficiaries.
Why review your beneficiaries?
- It’s a way to check your work. If you didn’t complete the beneficiary designation forms when you enrolled, the terms of your retirement plan will determine who your default beneficiary is. Your plan’s summary plan description (SPD) includes information on what happens to your account if you die without a beneficiary. Ask your benefits or human resources department for a copy of your SPD if you don’t have one.
- Life events can change everything. Has there been a marriage, divorce, birth of a child, or a death in the family since you opened your account? If so, you may need to update your beneficiary designations. For example, if you’ve divorced and your former spouse is listed as your account’s beneficiary, that designation may not automatically become void as a result of the divorce (your SPD will specify the plan terms). Your ex-spouse could remain your beneficiary until you change your designations.
- Primary and contingent beneficiaries matter. If your primary beneficiary dies before you do and you haven’t named a contingent beneficiary, your account may be treated as if you hadn’t designated a beneficiary at all. The terms of your retirement plan may determine who the default beneficiary is when there is no surviving beneficiary. See your SPD for what happens to your account in this situation.
- Naming or changing beneficiaries is easy. To name an individual as a beneficiary, you may need specific data such as his or her birth date and Social Security number. Make copies of any forms you submit and request confirmation that they were received; then store copies of the forms with your other legal documents.
- There may be tax implications. You may also want to consider the impact of income taxes as you review your beneficiaries. Bear in mind that the taxable portion of any retirement plan distributions to your beneficiaries will be subject to federal and, if applicable, state taxes. Talk to your tax adviser about your situation and about any implications for your intended heirs.
How to review and update your beneficiaries
Depending on your account, you may be able to review and/or update your beneficiary information online. Log in to your account to see if this feature is available for your plan.
If you can’t view your beneficiary information online, contact your employer’s benefits or human resources department. They will have a copy of the form you completed when you enrolled in your plan.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional or downloaded and should be read carefully before investing.