Your 401(k) Account Is The Gift That Keeps On Giving
It is easy to find online content about leaving your boring job behind and living a life of adventure as an entrepreneur or a digital nomad, but you would be wise to regard this content as idle escapism. If you have a 401(k) account, then you will have the last laugh, or most likely, your heirs will. A 401(k) account, if it originated as an employment benefit, and if you make automatic contributions to it each pay period and your employer matches them, is one of the easiest sources of passive income that you can get. Salaried employees with 401(k) accounts are increasingly rare these days, but they are in a better position than anyone, except the wealthiest people, to pay off their home mortgage loans and buy long-term care insurance. This means that, when they retire, they can spend their 401(k) income on fun stuff, if they spend it at all. If you have consistently contributed to your 401(k) account throughout your career, there is a strong possibility that, when you die, there will still be money left in the 401(k) account for one of your family members to inherit. To find out more about how your 401(k) income can be an inexpensive source of prosperity in your retirement and your estate plan, contact a Tampa estate planning lawyer.
A 401(k) Can Become Part of Your Estate or Pass to the Beneficiary as a Non-Probate Asset
When a person dies, most of the person’s property becomes part of his or her estate, and the probate court distributes the property to the deceased person’s heirs after giving creditors a chance to seek repayment of debts from the estate. Assets that become part of a deceased person’s estate are called probate assets. A 401(k) account is a probate asset, but you can turn it into a non-probate asset by designating a beneficiary.
Non-probate assets reach their beneficiaries faster and with less expense than probate assets. Other examples of non-probate assets include trusts, payable on death (POD) bank accounts, and life insurance payouts.
Options for Beneficiaries of 401(k) Accounts
To claim a 401(k) account after the original owner dies, the beneficiary must present the original owner’s death certificate to the financial institution that holds the account. The beneficiary can then withdraw the money in a lump sum or in installments, but it counts as taxable income. Unless the beneficiary is the original owner’s spouse, the deadline for withdrawing all the money is ten years from the date of the beneficiary’s death. If the beneficiary is the original owner’s spouse, he or she can withdraw the money at his or her leisure. A surviving spouse who inherits a 401(k) account can simply keep the money in the account for the rest of his or her life and let his pass to the beneficiary that he or she designates, or else merge the inherited 401(k) with the surviving spouse’s own employer-provided 401(k) account.
Contact David Toback About 401(k) Accounts in Your Estate Plan
A Central Florida estate planning lawyer can help you if your estate plan includes a 401(k) account. Contact David Toback in Tampa, Florida to set up a consultation.
Source:
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