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Beneficiary designations critical in Florida retirement accounts

West Palm Beach readers may want to make a point of checking up on the beneficiary designations in their 401(k) plans. Failure to designate a beneficiary can result in plan assets being distributed in accordance with default plan rules. Plan default rules may not reflect the plan owner's wishes and may work unnecessary complications into estate administration.

Plan rules are commonly determined by the employer sponsor of a retirement plan. In some cases, plan rules will provide for distributing the assets of a retirement account to a spouse or children. In other cases, the rules will automatically distribute assets to the account holder's estate. When assets pass to the decedent's estate, they may become subject to probate administration.

Keeping assets out of probate saves beneficiaries the time and money involved in court supervision of estate administration. More importantly, designating a specific beneficiary may allow the assets to be transferred to an inherited IRA account.

An inherited IRA allows a beneficiary to defer tax liabilities by stretching out regular distributions over the beneficiary's anticipated lifetime. In the absence of a designated beneficiary, however, the law generally requires account assets to be distributed within five years after the account holder's death. In some cases, plan rules may require assets to be distributed even more quickly.

Designating a beneficiary to retirements accounts is easy to accomplish, but failing to do so can have unintended and undesirable consequences. Every Floridian should make a point of reviewing estate plans on a regular basis. Confirming beneficiary designations should be a standard practice in the review process.

Source: New Jersey Online, "Biz Brain: Surviving heir asks how to handle deceased relative's 401(k)," Karin Price-Mueller, Oct. 28, 2012

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