Can I control who inherits my 401(k) money after my spouse dies?

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Question:

My husband and I each have adult children by other marriages. My spouse is the beneficiary of my 401(k). But when he dies, I would like what's left of that money to go to my child. How do I handle that?

Answer:

You cannot control your 401(k) funds from beyond the grave. When you name your husband as beneficiary of your retirement plan, the plan will belong to him when you die -- and he can do with it whatever he wants. You can emphasize to him that you want the remainder to go to your child when he dies, but he is not bound by your wishes.

To have the remainder of your 401(k) go to your child after your husband's death -- assuming you die first -- you'd have to do something a little more complex, such as name a trust as beneficiary of your 401(k). Your trust would specify that while your husband is alive, he could have access to the income and perhaps some of the principal of the assets of the trust, but after your husband's death, the remainder would go to your child.

The trust does not own the 401(k) plan, but whenever money is taken out of it, the money goes into the trust and then is distributed to beneficiaries as dictated by the terms of the trust.

There are also disadvantages to naming a trust as beneficiary of your 401(k). You might want to sit down with an expert, such as an estate planning attorney who is also familiar with retirement plan rules, and sort out all the pros and cons before making a final decision.

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