If you have a traditional individual retirement account (IRA) or participate in a retirement plan offered by your employer—such as a 401(k) plan, qualified stock bonus plan, pension plan, or profit-sharing plan—you are generally required to complete a beneficiary designation form and submit it to the IRA custodian or 401(k) plan administrator. The beneficiary or beneficiaries you designate will receive the funds in your IRA or plan account at your death.
Your choice of beneficiary for these retirement accounts or plans may have other important consequences, such as the amount of annual required minimum distributions (RMDs) that you must take from the IRA or plan during your lifetime; the rate at which the funds must be distributed from the IRA or retirement plan after your death; and federal estate tax liability for you and your spouse.
Because of the important implications of your choice of a beneficiary (or beneficiaries) for your retirement accounts, you may benefit from the advice of your estate planning lawyer, financial advisor, or tax advisor on these matters.
Changing Your Beneficiary Designation
You may also want to revisit your beneficiary designation from time to time, as it can generally be changed at any time—although if you are married, federal law may prohibit you from naming a person other than your surviving spouse as the primary beneficiary of your interest in some employer-sponsored retirement plans (such as 401(k) plans)—unless your spouse signs a timely and effective waiver that allows you to name a different primary beneficiary.
Although IRAs are not subject to this federal law, similar restrictions may apply under the laws of your state. And if you live in a community property state your spouse may have legal rights to IRA contributions made during your marriage even if your spouse is not named as the primary beneficiary.
State law may also prohibit a surviving spouse with an IRA from changing the primary beneficiary designation from their spouse to another person after their spouse’s death. Because of the important implications of these choices and the restrictions on retirement account beneficiaries, you may benefit from the advice of your estate planning lawyer, financial advisor, or tax advisor on these matters.
In Texas, when you have a retirement account such as an IRA or a 401(k), you are typically required to designate a beneficiary who will inherit the funds upon your death. The choice of beneficiary can affect required minimum distributions (RMDs), the pace of post-death distributions, and potential federal estate tax implications. It's advisable to consult with an estate planning attorney, financial advisor, or tax advisor to understand these consequences. Beneficiary designations can usually be changed at any time, but if you're married, federal law often requires your spouse to be the primary beneficiary for employer-sponsored plans like 401(k)s, unless they consent otherwise. IRAs are not bound by this federal rule, but in community property states like Texas, your spouse may have rights to IRA contributions made during the marriage, regardless of the beneficiary designation. Additionally, state law may prevent a surviving spouse from changing the primary beneficiary after the other spouse's death. Given the complexities and potential restrictions, professional advice is recommended to navigate these decisions.
