Many individuals in California contribute to a 401(k) account in an attempt to plan for their future and have money set aside for retirement. However, it is essential to understand what happens to a person’s 401(k) if they pass away without naming a beneficiary.
401(k) and estate planning
If a person dies before naming a beneficiary for their 401(k) account, the account will likely be considered part of their estate. This means it will go through probate, a process governed by California law. Probate can incur significant expenses and cause delays in settling a person’s estate. To avoid this, it is best to include naming a beneficiary for your 401(k) as part of your estate planning. This involves identifying both primary and secondary beneficiaries. It is also important to periodically review this aspect of estate planning, mainly when significant life changes occur.
Choosing 401(k) beneficiaries
A 401(k) investment offers several tax advantages and is a retirement savings vehicle. When choosing beneficiaries, you can select almost anyone you want. The beneficiaries can control and benefit from your 401(k) assets after death. Many choose a spouse, child, educational institution or religious institution as beneficiaries. Some 401(k) plans require naming beneficiaries when the account is opened or providing periodic reminders to select beneficiaries.
Naming beneficiaries makes transferring assets to friends, family members or your preferred charitable cause easier. You can name multiple beneficiaries to divide your 401(k) account or its investments based on your financial wishes.
While it may be challenging to consider financial planning after your death, naming a beneficiary for your 401(k) plan minimizes the time and cost required to settle your estate. It provides your loved ones peace of mind and the necessary financial support.