A 401(k) can be worth a lot of money to your family when you die, especially if you die before having had time to draw on it yourself. Therefore it’s crucial to ensure that money gets to the people you want.
One mistake a lot of people make is to forget to update their 401(k) beneficiaries when circumstances change. For example, they name their spouse but forget to take their name off when they divorce That can leave their children or anyone they marry in the future needing to sue to try and get some of the money that remains designated to the ex-spouse. Even if they succeed, they are unlikely to get more than half.
Another mistake people make is failing to update things when someone dies
Always naming a backup beneficiary can help here, but it’s wise to remove a beneficiary’s name altogether when they die and ensure you always have two living people named as primary and secondary options because you just can’t tell what is going to happen.
You can split the 401(k) between people
A 401(k) does not need to go to just one person. If you want to share it, you can name several people and specify the percentages each of them gets. Again, make sure to update it if one of them dies, so that you can reallocate their share.
You can also name a trust as the beneficiary
This can help if your child is still a minor and cannot therefore inherit directly. There are also other occasions when designating a trust as the beneficiary can help.
Reviewing your beneficiary designations along with the rest of your estate plan each year can help ensure your estate reaches the people you intend with the minimum of fuss.