Legal Blog

The Weekly Scenario: Restrictions for Retirement Plan Beneficiary

Question:

Are there any restrictions on who I can name as the beneficiary of my retirement plans?

Answer:

As a general proposition, you have the freedom to decide who will receive the funds as beneficiary of your qualified retirement plan account at your death.  However, there are at times legal restrictions as to whom you can name as a beneficiary of your IRA or Qualified Plan Account. Restrictions for IRAs are usually based on state law. Most restrictions on Qualified Plans (i.e., 401(k) plans or (403(b) plans) are based on federal law, specifically, so-called “ERISA” rules which govern most Qualified Plans. These ERISA rules were enacted to protect both the employees and their spouses. Some of these rules prevent an employee from transferring his interest in the plan during his lifetime and also prevents potential creditors from getting access to the funds.  Moreover, these rules protect your spouse by providing a ‘default’ distribution as a result of the employee’s death. If death occurs before distributions have begun, then your spouse must receive the remaining benefits either outright or in the form of a qualified survivor annuity. Once you start taking distributions from the plan account, the remaining benefits must be paid in the form of a qualified joint and survivor annuity.  Upon your death, the annuity amount paid to your spouse must be at least 50 percent of the annuity amount paid to you during your lifetime. Comment:  So long as your spouse consents, the right for him to receive such benefits in the form of a survivor annuity or qualified joint can be waived.  As such, if you want to name a beneficiary other than your spouse, your spouse must consent in writing (and such writing generally must be notarized). 

As always, if you have questions or would like to know more about retirement plans and beneficiary restrictions please contact Steven E. Shane at:

Steve Shane Head Shot for websshane@offitkurman.com | 301.575.0313.

Steve provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts and charitable trust. He is also experienced with drafting documents for business planning, the incorporation and application for exemption for Private Foundations and the administration of decedents’ estates.

You can also connect with Offit Kurman via FacebookTwitterGoogle+YouTube, and LinkedIn.