Choosing a Beneficiary
Choosing a beneficiary will help make sure your assets don't get caught up in legalities.
You’ll need to name a beneficiary when you enroll in a 403(b) or 457 plan. Generally, it’s a good idea to name a secondary beneficiary (also called a contingent beneficiary) in case your primary beneficiary passes away before you.
What is a beneficiary?
The person who will receive your plan assets if you die before taking them yourself. Spouses and adult children are common choices for primary and contingent beneficiaries, but there are other options, too, such as relatives and friends.
When choosing a beneficiary, you’ll want to think about the following:
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.
If you are single, you need to name your primary beneficiary, since there is no spouse serving as the default beneficiary.
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.
A non-spouse 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.
Significant other, relative, or friend
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.
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.
What are the consequences of assigning a beneficiary?
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.
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.