Failure to complete this form could have financial consequences for your loved ones.
- There are many forms you need to fill out when you open a 401(k).
- Dave Ramsey says don’t overlook your beneficiary designation.
- This form is important because it specifies who should inherit the account if something happens to you.
Opening a 401(k) account is one of the most important steps you can take if you want to save for your retirement. The good news is that it’s pretty easy to do. Unlike opening an IRA and finding a brokerage firm to hold your account, your employer takes care of the administrative tasks associated with a 401(k). Simply join your plan at your place of work.
However, when you register, you have to fill out many forms. And financial expert Dave Ramsey warns there’s one in particular you can’t afford to forget.
Be sure to complete this form and keep it up to date
Ramsey cautioned that it’s important for anyone opening a 401(k) to be sure to complete their beneficiary designation form.
“This is where you indicate who will get your 401(k) money if you die,” Ramsey explained. He explained that for those with a spouse and children, it’s usually quite easy to fill out this form initially – but it gets forgotten eventually and could be a hassle.
“It’s a form that people tend to really fill in and forget about,” he said. “In some cases people got divorced and remarried, but their 401(k) would still go to their ex if they died because they never updated their beneficiaries. Other times, the investor may have had children but forgot to add them to the form.”
You don’t want the wrong person inheriting your retirement money because you forgot some simple paperwork, so Ramsey’s warning here is important to heed. You cannot forget to ensure that this form is up to date at all times.
How to choose your 401(k) beneficiary
If you are married, you may need to designate your spouse as your 401(k) beneficiary, unless they waive their right to inherit the account. You’ll want to make sure you understand these rules when deciding who will inherit the funds.
If you don’t have a spouse, think about close relatives or relatives who would benefit from inheriting the money you have. These could be your children or other people you depend on or whose financial needs you want to support.
You can also consider your beneficiary designation as part of your larger estate planning process. For example, you may decide to purchase life insurance to support some dependents while leaving your 401(k) balance to others.
The important thing is to make an informed choice, complete your form and keep it up to date by contacting your employer’s human resources department or logging into your 401(k) account online to change your beneficiary if your life must change. You must also name a contingent beneficiary if your 401(k) forms allow it, which is someone who will inherit if your primary beneficiary is unable to do so because they predeceased you.
Remember that whoever is named as the beneficiary will be the one to receive the funds from the account, so take Ramsey’s advice and make sure this important form isn’t the one you’re overlooking.
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