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How Your 401(k) Could Disinherit Your Kids

Even with a will, your retirement account might wind up in the wrong hands

By Matthew Heimer and MarketWatch


For many families that lose a loved one, this situation spells trouble. If the two documents conflict, it’s the beneficiary designation, not the will, that determines who gets the deceased person’s retirement account assets.

The Out-of-Date Beneficiaries Problem

Conflicts like these have become a thornier issue as more people concentrate more of their wealth in their retirement savings plans, and they’re the subject of a new study by Stewart Sterk and Melanie B. Leslie of the Benjamin N. Cardozo School of Law at Yeshiva University, published in the most recent issue of the New York University Law Review.

(MORE: Americans' Ostrich Approach to Estate Planning)


As you may (or may not) recall from when the last time you opened a new 401(k) or IRA account, savers are almost always required to designate a beneficiary before they start funding the account. These days, it’s typically a formality that people speed through on the web, analogous to the baggage-checking step when you check into a flight online.

And many people tackle this task early in their careers, when spouses and kids have yet to enter the picture; they’ll typically designate their parents, siblings or nieces and nephews as their beneficiaries. (Before I got married, my impressive four-figure IRA was earmarked for my younger brother.)



Clearly, the system leaves a lot of room for improvement; all the more reason to make sure your own accounts are up to date.

Matthew Heimer covers retirement for MarketWatch and edits the Encore blog. Follow him on Twitter @MatthewHeimer.


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