You have been building a 401 (k) since you started working in your twenties, and you just got around the drafting a will, now that you are a parent. So, you are on track financially, correct? Well, maybe.
Consider your beneficiary designation for your 401(k). Okay—now take a look at who will inherit your assets according to your will. Do the beneficiaries match? If these individuals are different, it’s the beneficiary designation with the 401(k), not the will, which determines who gets the proceeds of your account. This is a shocking revelation for many people, and has been the subject of many a court case, especially in recent years.
Establishing an IRA or 401(k) often precedes drafting a will. After all, many people begin contributing to a retirement account when they land their first real job, or are at a point when they are no longer living paycheck to paycheck. However, many people do not get around to drafting a will until much later-perhaps, when kids come along or an illness sets in.
Many a life change can happen between establishing a retirement account and drafting a will- kids are born, divorces can happen, or parents may die. Therefore, it is imperative that beneficiary designations are updated accordingly. Until retirement plans conform more closely to typical family law/probate provisions, it is necessary for account holders to take charge of keeping their beneficiary designations current.