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Beneficiary Forms: Self-Directed IRA & Solo 401K

Beneficiary Forms
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IRA Financial Group is recognized as the leading facilitator of self-directed IRA and Solo 401(k) Plans. As a result, we have come across many scenarios pertaining to Self-Directed IRA and Solo 401(k) Plan Beneficiary Forms.

One of our clients (who we will call John Jones), worked at a privately owned construction company in a southern state for 22 years. The tradesman turned supervisor named Janet Jones, his wife of 38 years, was the beneficiary of his 401(k) account in the event he died before her.

As fate would have it, Janet died first, so John updated his account paperwork, naming their three adult children as beneficiaries of the 401(k) retirement plan.
Eventually he got remarried to Betty Murphy, and was on the verge of retiring. Six weeks later, at the age of 67, John Jones died.

The Rightful Beneficiary

When Mr. Jones’ children from his first marriage tried to claim the assets, believing they were named on the most recent beneficiary form, they were rebuffed by the 401(k) administrator, who then asked a court to determine the rightful owner of the money.

Under the terms of the company’s 401(k) plan, if an employee dies, the employee’s spouse has the right to the account assets, unless the spouse waives that right in writing (the priority for spouses springs from federal law).

Betty Murphy Jones had never signed such a waiver.

The new Mrs. Jones filed a motion for summary judgment, and the matter eventually ended up in federal district court, which awarded the approximately $250,000 in the account to her, disinheriting the children.

“I think John would be shocked,” said the lawyer representing the children, who are currently appealing. Neither the plan administrator nor Betty Murphy Jones would comment.

Beneficiary Rules

Here are some key rules governing retirement accounts, and lessons from the tax attorneys at IRA Financial Group on how to navigate the rules as families grow and change:

Spouse Gets Priority

Rule No. 1:

With 401(k)s, your spouse is the presumed beneficiary of your account upon your death—regardless of who is listed on the beneficiary form—unless he or she previously consented to your naming someone else beneficiary. These plans are governed by the federal Employee Retirement Income Security Act, also known as ERISA. Under this law, plans can provide for spousal rights to kick in immediately, or no later than a year after the marriage.

This general rule cannot easily be circumvented with a prenuptial agreement. Only a spouse can waive the right to 401(k)-plan assets—those who are engaged cannot.

If you are contemplating remarrying and are concerned about providing for children from a prior marriage, consider rolling your 401(k) to an IRA, where you have more latitude to name beneficiaries of your choosing.

Rule No. 2:

If you are single when you die, your 401(k) assets pass to the person designated on your beneficiary form—regardless of what your will says or what other agreements you made before your death.

The tax attorneys at IRA Financial Group advise their clients on these issues and is a principal component in why clients choose to have the attorneys at IRA Financial on their side, protecting their interests. IRA Financial Group is a premiere provider or self-directed IRAs and Solo 401(k)s.

IRA Financial Group will take care of setting up your entire IRS compliant Self-Directed IRA or Solo 401(k) Plan. Our certified specialists can handle the process by phone, email, fax, or mail – whichever means is most convenient. This process typically takes between 7-21 days to complete, the timing largely depending on the state of formation and the custodian holding your retirement funds.

Our tax and ERISA attorneys are on site, which will reduce the set-up time and cost of establishment. Most importantly, each client of the IRA Financial Group is assigned a tax attorney to help with the establishment of the retirement Plan, such as the Solo 401(k). You will find that our fee for this service is significantly less than other companies that perform the same or similar services.

Get in Touch

If you are currently in a similar predicament as the Jones’ children and would like assistance, contact IRA Financial Group directly at 800-472-0646.

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