If you name your husband or wife as beneficiary of your 401(k) or other employer-sponsored
retirement plan, he or she has a number of options for
managing the assets when you die. In the past that wasn`t
the case if you passed money in your 401(k) account to
other beneficiaries, such as children, grandchildren, or
a domestic partner.
Unlike spouses, who could arrange for a pension annuity
or roll over inherited plan assets to their own IRA and
delay making withdrawals until age 70 1/2, other beneficiaries
were required to cash out the account within five years
and pay all the income taxes due on it at that time. The
same rules applied to similar retirement plans such as 403(b)s and 457s. Essentially, passing along retirement
plan assets to someone other than a spouse meant triggering
a tax bill — often one that could reduce an inheritance
by 30% or more.
But now, new rules ease the process of passing along these
assets to other beneficiaries in many cases. These new
rules are part of the sweeping Pension Protection Act of
2006, and took effect at the start of 2007.
Spouse’s consent
If you’re married,
your spouse must be the primary beneficiary of your 401(k), 403(b),
or 457 plan. If you want to leave the assets to someone other
than your spouse, he or she will need to sign a notarized
waiver so that you can name an alternative beneficiary.
