It won’t matter what your will says about any accounts or assets that have a designated beneficiary. The named beneficiary will receive the asset on your death.
What happens if you don’t spend all of the money in your 401(k) plan, before you pass away? Your retirement savings will go to the person named as the beneficiary on the account, as noted in a useful article from U.S. News & World Report, “How to Pick a Beneficiary for Your 401(k) Plan.” By naming a beneficiary (and a contingent beneficiary), your heir will receive those funds without having to go through probate or wait for your estate to be settled.
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.
Here’s a last step that is often overlooked: tell those you’ve named as beneficiaries that they are on the account. Give them information about the financial institution, so that they can more easily receive their inheritance when the time comes. That is one less detail for you to worry about and will help them during what will undoubtedly be a stressful time.
Reference: US News & World Report (July 2, 2018) “How to Pick a Beneficiary for Your 401(k) Plan”