I chatted with InvestorPlace’s Jeff Reeves on a story he wrote for USA Today on the importance of keeping your 401(k) and IRA documents updated. You don’t want to mess this up. Doing this wrong can result in your ex-wife or ex-husband walking away with your entire life savings, leaving your new spouse and even your kids with nothing.
Here is an excerpt:
When people think about estate planning, they commonly worry about what goes in their will.
But many forget about the importance of updating beneficiary information on financial products, including 401(k)s or life insurance policies…
It’s not uncommon to see someone who has been at a company for 15 or 20 years have a beneficiary that they set up on their first day of work, said Charles Sizemore, a CFA charterholder and chief investment officer at Sizemore Capital Management in Dallas.
“Your life could look a lot different,” he said. ”You might have divorced and remarried, or you might have kids or grandkids that weren’t around back then.”
Accidentally leaving your estate to an ex-spouse or disinheriting stepchildren is all too common for those who haven’t updated beneficiaries. But even if these extreme circumstances don’t occur, a lack of clarity can be detrimental to your heirs by adding cost and complexity to the inheritance process…
“One neat little trick to avoid taxes as long as possible is to skip a generation” with a tax-deferred retirement account like a 401(k) or IRA, Sizemore said. “In other words, leave it to your grandkids instead of your kids.”
Once you reach age 70½ you have to withdraw money from these accounts under federal law. Thus, leaving the cash directly to a younger family member allows them to keep it growing tax-free for a few extra decades.
You can read the full article here.