When you enroll in a 403(b) or 457 plan, you must designate a beneficiary – someone who will receive your plan assets if you die before taking them yourself. Under federal law, a married person must make his or her spouse the beneficiary, unless the spouse gives up that right.
In that case, when you complete your beneficiary form, your spouse must sign the form indicating that he or she agrees to relinquish the rights as beneficiary to a non-spouse beneficiary, and the form must be witnessed by a notary public.
If you are single, you need to name your primary beneficiary, since there is no spouse serving as the default beneficiary. If you have a significant other, close relative or special friend to whom you want to leave your 403(b) or 457 plan assets, you must provide the information on the beneficiary designation form.
Whether you are married or single, you may also want to choose a contingent beneficiary. This is the beneficiary who will receive your plan assets if your primary beneficiary predeceases you or disclaims (refuses to accept) the inheritance.
The designation of a beneficiary has significant consequences, so it’s a decision you should consider carefully. Because beneficiary designations supersede a will, you’ll want to coordinate them with the rest of your estate plan. Consider the beneficiary designations you’ve made on life insurance policies, individual retirement accounts (IRAs) and investments.
It’s a good idea to review your designations at each significant life event – such as marriage, divorce, birth, adoption, death or change in financial status – to be sure they’re up-to-date with your circumstances and wishes.
Ponder the Possibilities
Spouses and adult children are common choices for primary and contingent beneficiaries, but there are other options, too. Consider the following issues when choosing a beneficiary.
- To provide for minor children or grandchildren, consider a trust as your beneficiary. You can set it up to provide support for children while they’re young, then give them access to the funds at an age you deem appropriate.
- Young, single workers may want to leave their funds to their parents, who may need help paying health care expenses as they get older. Consider how inherited funds will affect your parents’ tax burden.
- A nonspouse partner will have little or no claim to your assets unless you name him or her as your beneficiary. The courts normally award assets to a blood relative before a long-term, live-in partner.
- You can name a charity as your beneficiary, but doing so can complicate distributions when you’re retired. An alternative is to wait until you retire, roll over the assets to an IRA, and name the charity as beneficiary of your IRA.
Seek Professional Guidance
To ensure that your estate plan reflects your wishes, consult your tax advisor and estate-planning attorney for more information. If you need to review or update your 403(b) or 457 plan beneficiary designations, contact your district for the appropriate forms.