Do My Retirement Accounts Go to My Spouse and Kids?

Not automatically. Your 401(k), IRA, and pension pass to whoever is named on your beneficiary designation form, not according to your will. If that form is outdated, incomplete, or blank, your retirement savings may not go where you intend, even if the rest of your estate plan is in perfect order.

For many Alabama families, a retirement account is the largest asset they own. That makes retirement planning and estate planning inseparable. Here is what you need to know to make sure your savings go to the people you love.

Doesn't my will cover my retirement accounts?

No. Retirement accounts are "non-probate" assets, which means they transfer directly to the named beneficiary outside of your will. If your will leaves everything to your children but your 401(k) beneficiary form names your sister, your sister receives the 401(k). The form wins.

This is one of the most common gaps in an estate plan, and it's why reviewing your will alone is never enough.

Does my spouse automatically get my 401(k)?

Usually, yes. Federal law generally requires a 401(k) to go to your surviving spouse unless your spouse signed a written waiver giving up that right.

IRAs are different. They don't carry that same federal protection, and because Alabama is not a community property state, your spouse has no automatic claim to your IRA. An IRA goes to whoever is named on the form, spouse or not.

What if my ex-spouse is still listed as my beneficiary?

This is where families get hurt. Alabama law automatically cancels gifts to a former spouse in your will after a divorce. But for employer plans like a 401(k), federal law controls, and courts have held that the plan can pay the person named on the form, even an ex-spouse, regardless of the divorce.

If you've been divorced, checking your beneficiary forms should be at the top of your list.

Can my children inherit my IRA or 401(k)?

Yes, but how they inherit matters.

A minor child cannot receive retirement funds directly. In Alabama, a person is a minor until age 19, so if your kids are named outright, your family may have to go to probate court to have a conservator appointed to manage the money until then. Naming a properly drafted inheritance trust for your children avoids that process and lets you decide who manages the money, how it is used, and when your children receive it.

Adult children can inherit directly, but there is a tax consideration. Under current federal law, most beneficiaries who inherit a retirement account must withdraw the entire balance within 10 years, and those withdrawals are generally taxed as income.

There are important exceptions. The 10-year rule does not apply the same way to:

• A surviving spouse
• The account owner's minor child, until the child turns 21, when the 10-year clock begins
• A beneficiary who is disabled or chronically ill
• A beneficiary who is not more than 10 years younger than the account owner, such as a sibling close in age

These beneficiaries can generally spread withdrawals over a longer period, which can ease the tax burden. For families caring for a child with a disability, this exception is especially valuable, and it works best when paired with the right kind of trust so the inheritance does not jeopardize government benefits.

A thoughtful plan accounts for all of this before it becomes your children's problem.

What happens to a 401(k) or IRA with no beneficiary?

The account follows the plan's default rules, which often send the money to your spouse or to your estate. If it goes to your estate, it may have to pass through probate, where your executor (called a personal representative in Alabama) handles it along with the rest of your estate. Your heirs can also lose some of the tax advantages they would have had as named beneficiaries of an inherited IRA or 401(k).

What should I do now?

Log into each retirement account and review your beneficiaries, both primary and contingent. Then ask yourself whether anything has changed since you last looked: a marriage, a divorce, a new child or grandchild, or the loss of someone you named.

Most importantly, make sure your beneficiary designations, your will, and any trust you have all work together. A complete estate plan isn't just a will. It's making sure every asset you own points in the same direction.

Talk to an Alabama Estate Planning Attorney

If you'd like an experienced set of eyes on how your retirement accounts fit into your estate plan, let's talk.

Contact us at contact@squiremoore.com or visit squiremoore.com/contact.