Personal Retirement Accounts and Your Family

Recording your family within your retirement accounts has a number of purposes.  By recording your family, it ensures that your family will have the right to claim any benefits that may be owed to you from your retirement account; or if you can no longer function and are legally incapacitated, a family member may be appointed to be in charge of your accounts.

By keeping important documents readily available and maintained in a folder or secure location, you will make it easier for your family to take care of any required tasks and to track your financial dealings.  Credentials that should be maintained include information regarding social security benefits and annuities, pension plans, and personal retirement accounts.

Retirement Accounts after Death

In the majority of retirement account plans, an option exists for you to name a beneficiary.  A beneficiary is a person who is appointed to receive benefits that are leftover in a retirement account after a person’s death.  If there is money remaining in the account upon your death, then the person who has been named as the beneficiary will receive the leftover amount without being required to go through probate in court.

For retirement accounts like 401(k)s and many pension plans, it is required by law that your spouse be named as your beneficiary  (unless he or she waives this right).

For IRAs and employer profit-sharing retirement plans, you may name any beneficiary that you like. However, if you live in a community property state (like California), your spouse will automatically be entitled to half of any money that is in the retirement account that was earned while you were married.  If you do not wish to leave any retirement account to your spouse, make sure to find out what the law in your state and what your options are.

By setting up a living trust and naming the trust as a beneficiary, probate court can be avoided.  However, this may not be necessary, as many retirement accounts are exempt from probate laws.  By naming the trust as the beneficiary of a retirement fund, you may actually be limiting what your actual beneficiary can do with the funds.

Social Security Benefits after Death

After a person’s death, surviving family members may be eligible to receive Social Security benefits if they meet particular requirements. More often than not, family members can receive the full retirement amount.  For your spouse to be eligible to receive your Social Security benefits, they must be:

  • Any age if your spouse is caring for your child that is under the age of 16 years old or is disabled and receiving Social Security benefits; or
  • At least 60 years old; or
  • At least 50 years old have be disabled.

Your children will be qualified to receive your Social Security benefits if they are unmarried and:

  • Are less than 18 years old; or
  • Between 18 and 19 years old and attending secondary school full-time; or
  • Over the age of 18 but severely disabled (the disability must have started before he or she turned 22).

Other people, such as a former spouse, your stepchildren, grandchildren, or your parents if they are dependent on you, may also qualify as beneficiaries of your Social Security benefits.

Get a List of All of Your Personal Retirement Accounts and Benefits

Making a list of all pertinent information regarding your retirement accounts and benefits can help make things go smoother for your family members down the road.  Keep this list in a secure location and make sure that at least one other person knows where the list is located.  The list should include information such as:

  • Employer-sponsored pension or retirement plans;
  • IRAs (including traditional, Roth, SIMPLE and SEP-IRAs); and
  • Employer profit-sharing plans, Keogh, or 401(k)s you set up for being self-employed.

For all accounts listed, clearly mark the following information:

  • Name of the institution that manages the account (such as a bank or financial manager);
  • Account number (or some other way of identifying the account);
  • Contact information of person in charge of your finances;
  • If you currently are receiving benefit payments and how much the payments are;
  • Beneficiary listed on the account; and
  • Location of your financial plan statements;
  • Also include your Social Security benefits in this list as well.

Last but not least, because circumstances frequently change, make sure to check and update this list EVERY year.

Securing and Storing Your Documents and Information

Because the list discussed above and any other accompanying documents you will be storing contain fairly sensitive financial information, it is important to store it in a secure location, such as a fireproof safe or a lockable file cabinet.   Do not forget to ensure that at least one other person knows where the list is located.

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