Estate planning:
Financial assets
You do have options for distributing
your financial assets,
such as bank accounts, investments, and retirement
plan assets, outside a will or trust.
It’s a good idea to take advantage of these alternatives
if you’d like to leave the lion’s share
of your assets and property directly to your unmarried
partner.
Naming beneficiaries
Many accounts you own individually allow you to name beneficiaries to receive
assets after your death. That includes
employer-sponsored
retirement savings plans,
including
401(k)s,
403(b)s,
457s,
IRAs,
and insurance company products, including
annuities and
life insurance policies. If you’re single — as unmarried partners
are in the eyes of the law — you can select whomever you like for any of
these accounts.
New rules for nonspouse 401(k) beneficiaries
One catch, though, is that in the past, nonspouse beneficiaries of 401(k), 403(b),
and 457 plans were not allowed to roll the assets over into their own IRAs. That
meant that beneficiaries usually had no choice but to withdraw the money in a
lump sum and pay state and federal taxes on it, reducing their inheritance by
30% or more.
As of 2007, nonspouses who inherit assets from 401(k)s and other employer-sponsored
defined contribution plans are able to roll over their assets into a special
IRA — called an inherited IRA — to handle such transactions. While
beneficiaries are required to take annual withdrawals, the amount is based on
life expectancy — so a 50-year-old beneficiary might be able to stretch
out his or her withdrawals over 30 years or more. Meanwhile, the assets remaining
in their inherited IRA have the potential to grow.
If you're a nonspouse beneficiary of a 401(k), make sure to follow the rules
for rolling over to an inherited IRA carefully, since one mistake could result
in a major tax bill.
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