Managing Your Money

Death of DOMA: Time to Double Check Your 401(k) Beneficiary Designation

DeathDOMA.jpgBeneficiary designations for your 401(k), IRA and life insurance policies, are extremely important but often forgotten when reviewing one’s financial plan. For many Americans, much of their wealth is held in these accounts. The rules can be complicated especially for those who have remarried.

Long standing rules regarding spousal beneficiary designation under federal law now apply to those in same sex marriages.

Designating a beneficiary for these accounts allow for the assets to avoid probate and go directly to the named beneficiary. There are some important points to keep in mind.
401(k) plans are governed by federal law which states that the default beneficiary of a married person is their spouse. If a married person dies, their spouse is entitled to the account balance unless the surviving spouse has signed a Spousal Waiver.

These rules can cause complications if not understood. For example, an owner of a 401(k) divorces and changes the beneficiary designation to her children. She remarries and soon thereafter dies. Despite her children being named beneficiaries, her new spouse is entitled to the account balance under the law even though she was not named as a beneficiary.
IRAs are governed by state law and spouses are not automatically entitled to the account.

There is much more flexibility in naming a beneficiary. The owner of an IRA can name anyone a beneficiary. However, there are cases in which a long divorced spouse forgot to change the beneficiary designation removing his ex-spouse before he died. The result was that the assets passed directly to the ex-spouse. Once the owner of a retirement account dies, the designation is written in stone and cannot be changed. Many people mistakenly think that their will or even a pre-nuptial agreement supersedes a beneficiary designation. Not true, beneficiary designations trump the instructions left in one’s will or a pre-nuptial agreement.

These federal laws now apply to those in same sex marriages. Understand that your spouse is now the default beneficiary on your 401(k) plan whether you named them or not. Take time to double check all of your beneficiary designations and make sure they are up to date.

John F. McAvoy, CFP®, AIF® is on the board of the Financial Planning Association of Massachusetts and is the Principal at Waterstone Retirement Services ( in Canton, MA. Securities offered through Investors Capital Corp. Lynnfield, MA Member FINRA/SIPC; Advisory Services offered through Investors Capital Advisory, 6 Kimball Lane Lynnfield, MA 01940.

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