How to choose a beneficiary

When you sign up for a retirement plan, you’re always asked to fill out a beneficiary designation form. And while choosing who gets your money when you’re gone may seem simple, there are a number of things you should consider before making that important decision.

Choose your beneficiary carefully

For most married people, the answer is easy: my spouse. (In fact, the law requires them to be your primary beneficiary unless they waive their role in writing.) As your beneficiary, they have the ability to roll the account over and treat it like his or her own. That means they can continue to make contributions to the account if they want and don’t have to start taking distributions right away.

If you choose a non-spouse as your beneficiary, be aware that the same rules don’t apply. Non-spouse beneficiaries cannot roll over an inherited retirement account into their own IRA, and can only wait five years after your death to take the money out. They can take all the money at once or they can elect lifetime distributions.

Understand that your beneficiary designation trumps your will

If you decide you want to name someone different to inherit your retirement account, but only change it in your will, it will still go to the person you designated for your plan. Your plan’s designation form always takes precedence over a will.

If you’re leaving the money to a minor, choose a custodian

You can leave your retirement money to your children, but make sure they’re ready for it when they get it. If you don’t designate a custodian for minor children, the courts will do it for you, and that person may not be aware of what you wanted your kids to do with that money. Maybe you were leaving it to them so they can buy a house one day or help pay for college. The only way to ensure that the money is used how you want it, is to work with an attorney to put together a will or estate plan and spell it out.

To maximize your legacy, follow the rules

Depending on the type of plan you have, you may need to take minimum distributions at some point. For a 401(k), you’ll need to take required minimum distributions from your plan, starting at age 70 ½. If you don’t, you can end up paying an extra 50% penalty on the amount you were supposed to take. So, instead of being able to reinvest that money for your heirs or give it directly to them, you’ll pay that amount to Uncle Sam. For a 403(b) plan, distributions can start as soon as age 55 if you’re no longer working. For a 457(b) plan, there is no age requirement, but you’ll need to be separated from service when you start taking distributions from your plan.

Important Note: Equitable believes that education is a key step toward addressing your financial goals, and we’ve designed this material to serve simply as an informational and educational resource. Accordingly, this article does not offer or constitute investment advice and makes no direct or indirect recommendation of any particular product or of the appropriateness of any particular investment-related option. Investing involves risk, including loss of principal invested.  Your needs, goals and circumstances are unique, and they require the individualized attention of your financial professional. But for now, take some time just to learn more.

This article is provided for your informational purposes only. Please be advised that this document is not intended as legal or tax advice. Accordingly, any tax information provided in this document is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transaction(s) or matter(s) addressed and you should seek advice based on your particular circumstances from an independent tax advisor.

Equitable Financial Life Insurance Company (New York, NY) issues life insurance and annuity products. Securities offered through Equitable Advisors, LLC, member FINRA, SIPC. Equitable Financial Life Insurance Company and Equitable Advisors are affiliated and do not provide tax or legal advice.

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GE 134747 (03/2018) (Exp. 03/2020)