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Your New 401K – Or, Your Old One

Posted on 03 November 2015 by admin (0)

Hello everyone – my friend and colleague Ron Meyers and I collaborated to bring you this blog. Ron, an attorney who specializes in estate planning, joined my office this past year. He advises some of my clients as well as clients of his own on wills, trusts, and other legal issues that impact how your money is organized for yourself and your beneficiaries. If you have any questions, feel free to post them here or call one of us for a private conversation. You can reach me at 212-308-5495 and you can reach Ron at 212-644-8787.

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A lot of people have been out of work in the past year or two.  But now the economic reports are getting more optimistic, and I’m starting to hear about job openings everywhere.

If you are starting a new job now – or hope to soon – you might soon have the chance to enroll in your employer’s 401k plan, or a similar retirement account.  This is a great savings opportunity – you can stash away up to $16,500 a year for retirement, which is a smart thing to do. If you get used to not seeing that money now, you’ll adjust easily enough to your slightly lower take-home pay, and you’ll have a lot more to live on when you retire after a few decades of compounded growth.

But not so fast – there are some forms you need to fill out to get the 401k ball rolling, and they deserve your attention.  One of the most important is your beneficiary designation form.  It’s where you name beneficiaries – the people who would receive the funds you’ve accumulated when you pass away, whether that’s 50 years from now, or next week.  It’s very easy to gloss over this form amid the dozens of other pieces of paper they throw at you on the first day of work.  But think about it as a mini-will – it controls the disposition of your assets, so take it seriously.  And when you consider that for many people a retirement account is the largest asset they own, it’s not even so “mini”.

If you’re married, the person you probably most want to benefit from your retirement account is your spouse.  And that’s good, since the law anticipates that choice and allows a surviving spouse, unlike anyone else, to inherit a retirement account by rolling it over directly into his or her own retirement account.   If you’re not married, it’s even more important to indicate your choice of beneficiary, because the law might not make the right guess about your intentions.  It’s important to name contingent beneficiaries, too – people who would receive the account if your first beneficiary were not around.  You can name more than one person as a primary beneficiary, and more than one contingent.  But be careful to use everyone’s proper legal name, get their social security numbers right, and make sure all their percentage shares add up to 100%.  Mistakes like these are easy to make, and can create havoc when the plan goes into action.

If you are lucky enough to still be at a job you’ve had for years, think back to how you filled out that beneficiary form in your first week of work.  You don’t remember it?  That’s what I thought.  For something so consequential, it’s awfully easy to brush it off without much thought.  That’s why in the next three minutes, before your phone rings again and you forget, you should call your HR department and ask for a copy of your forms.  Or perhaps you can find your beneficiary designations through your company’s intranet.  Whatever the case, you might find a surprise.  Old girlfriend named as beneficiary?  It’s certainly time to change that.  Parents named as beneficiary?  Well, perhaps you now have a spouse who has become your first priority.  Perhaps your parents are getting older and you should have a contingent beneficiary named in case they don’t survive you.  Or maybe your spouse is named but not your kids.   Whatever you want to do is fine – but be sure your forms actually reflect what you want to do!

Finally – if you have changed jobs over the years, as most of us have in his generation, don’t leave your old 401ks out there.  The funds are still invested, but you have probably lost track of them and aren’t updating the investment choices to respond to all the changes in the market.  If you roll those old accounts over into a single IRA with your current financial institution, you’ll have more choices of how to invest those funds, and a bigger pool of funds to invest.  It will be easier to keep your eye on the ball, because there will be only one ball to watch.

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