When choosing a beneficiary for a retirement plan, it is important to understand how your spouse will be treated under the plan.
Surviving spouses are treated differently under 401(k)’s and individual retirement accounts (IRAs). While a 401(k) provides protection for a surviving spouse, and IRA does not.
Most people name their spouses to inherit the funds in their retirement plan accounts, but even a spouse who wasn’t named as the beneficiary of a retirement account may have the legal right to claim the money.
In a traditional IRA or Roth IRA account, the surviving spouse or registered domestic partner is not automatically entitled to inherit the money – especially if the account owner designated someone else as beneficiary. However, there are certain limitations.
Since California is a community property state, the money in a retirement account may be owned equally by the couple. An IRA is an individual account, but if the contributions came from community property, such as one spouse’s paycheck, all the money in the account is considered community property – unless the couple agreed otherwise.
If it has been determined that the account is community property, then the surviving spouse is entitled to claim his or her half of it.
A 401(k) plan is set up for employees and they meet certain IRS rules in order to qualify for federal tax benefits. With this type of plan, the surviving spouse has the right to inherit all money in the account – unless the survivor signed a waiver giving up his or her rights and allowed the spouse to name a different beneficiary.
The survivor must have signed the waiver while the couple was married. However, if the couple signed a prenuptial agreement before they married, and one or both of them gave up their rights to the other’s qualified retirement plan account, it won’t serve as a valid waiver.
If you have any questions regarding estate planning, the division of retirement plans, what benefits you might be entitled to or how these orders get drafted, contact the family law offices of Holstrom, Sissung,& Block. We have offices located in Riverside, San Bernardino and Orange Counties for your convenience.