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Naming retirement account beneficiaries

During your estate planning process, you have probably thought about how to structure trusts and probate documents to best suit your heirs' needs. You may have overlooked one important type of account during this estate administration preparation, however: Have you named your beneficiaries for your IRA or 401(k)?

Although naming your beneficiaries for these accounts may seem like a small matter now, it can have larger consequences for family members down the road. You need to think carefully about who should receive your retirement payout in the event of your untimely death. It is especially important to consider these designations after important life-cycle events such as marriage, divorce or having children.

It may not be immediately obvious that these designations are important, but imagine if you forgot to change your beneficiary after remarrying. If your ex-husband is still listed on the official document, he will receive your retirement benefits, leaving your current spouse without this important financial resource. In addition, if you die and leave your assets to a young and irresponsible child, your fortune could be frittered away in no time. In other words, these are not the outcomes you intended.

To prevent these undesirable consequences, estate planning experts give some general guidelines for naming beneficiaries. First, your spouse should be the primary beneficiary. Children should be next in line, designated as retained in trust as a contingent recipient. Be sure to review these documents periodically for accuracy, especially after live events that could have big financial implications. It is also important to keep copies of these documents in case of confusion.

Experts also recommend having a probate attorney review your estate documents in order to make sure they work together to achieve your desired result. Even though these tasks may seem tedious and unnecessary, the financial future of your family could be at stake. Review your retirement account beneficiaries to make sure your money goes where it truly belongs.

Source:  www.marketwatch.com, "The life-changing decision that many ignore" Larry Stein, May. 24, 2013