Bring Charitable Giving Into Your Estate Plan

Sometimes retirement planning and estate planning go hand in hand. This is especially true when it comes to naming or changing beneficiaries for your retirement plan. It is important to know the rules surrounding plan beneficiaries, as decisions you make can have a big impact on your family.

Know the Rules

You generally can name anyone as your beneficiary: your children, your grandchildren, your next-door neighbor. You can also name a trust. But if you are married, the law requires that your spouse be the main, or primary, beneficiary of your company-sponsored retirement plan unless he or she waives that right in writing. This point can be especially important in the case of second marriages. A waiver may make sense if your new spouse is already set financially or if children from a previous marriage are more likely to need the money.

Keep in mind that only spouses can roll over assets to a tax-deferred individual retirement account (IRA). Non-spouse beneficiaries are not eligible for a tax-deferred transfer to an IRA, which means they will be subject to income taxes on any distribution they receive (as will spouses who do not roll over the assets).

You can name more than one beneficiary, but you will need to specify how much each person will receive in percentage terms. Otherwise, the distribution will be divided equally. Changes in your life, such as the birth of a child, can affect how many beneficiaries you may have. Again, with company-sponsored plans, spouses must waive their right to receive 100% of the assets if they are distributed to multiple beneficiaries.

Your beneficiary designation can also affect your own distributions during retirement. The distribution amounts you receive may depend largely on the age and relationship of your named primary beneficiary.

Keep Your Wishes Up-to-Date

When reviewing your overall estate plan, make sure to include your retirement plan and update your beneficiary designations if necessary. This will help ensure that the entire estate plan flows smoothly and that changes in your family structure are addressed. Also keep in mind that beneficiaries are paid directly as named. Wills generally do not override the directions given on your beneficiary designation form, so do not assume that changing your Will is enough to make sure your wishes for your retirement plan are carried out.

Seek Advice

Consider all consequences, financial and emotional, when naming or changing beneficiaries for your retirement plan. You may want to seek the advice of a tax advisor or an estate planning attorney, as well as a qualified financial professional.