“The information on your 401(k) beneficiary form typically supersedes what is written in your will. Therefore, it's important to keep this form up to date for all your retirement and investment accounts.”
You want to make sure your 401(k) savings gets to your intended heir. US News & World Report’s recent article, “How to Pick a Beneficiary for Your 401(k) Plan,” says that naming a beneficiary of your retirement account lets him or her receive your financial bequest, without requiring access to your will, financial documents or going to court.
It’s not uncommon to name a spouse, child, or other relative as a beneficiary. If you want to leave the assets in your 401(k) plan to someone other than your spouse, he or she may need to sign a spousal consent form. You can name several primary beneficiaries and have the assets split equally among them, or assign a specific percentage of the account to each person. If you name multiple primary beneficiaries and one dies before you, the assets will be split proportionally among the remaining primary beneficiaries.
A contingent beneficiary receives the 401(k) assets, if all of the primary beneficiaries are deceased. List each beneficiary separately and the percentage of assets that will go to each person.
If you fail to designate a beneficiary, or your primary and contingent beneficiaries die before you, your surviving spouse will usually inherit your 401(k) assets. If you don't have a spouse or living beneficiaries, the funds in your account are typically moved into your estate.
Remember to update your beneficiary designations, after major life events. When you marry, you typically change your beneficiary to your spouse. If you plan to leave your retirement account balance to your children, you need to update your beneficiary form upon the birth of each child. It is even better to create a specially-designed Retirement Plan Trust to receive the retirement plan distributions on behalf of your children, especially when they are minors. Divorce or remarriage is another reason to change your beneficiary designations.
Beneficiary forms are unique to each 401(k) plan, so if you have numerous 401(k) accounts, you need to update all of them. You may consider consolidating your old 401(k) accounts or rolling them over into an IRA to make your beneficiary designations and investments easier to manage. Many 401(k) plans allow you to update your beneficiaries online.
Let your heirs know about their beneficiary status, since they may need to contact the financial institution to receive their inheritance. Tell your them where you have accounts, so they know what to expect and can claim your unused retirement funds.
Reference: US News & World Report (July 2, 2018) “How to Pick a Beneficiary for Your 401(k) Plan”