One question, we have a 18 month old daughter, if my wife and I are deceased to we need to add her to the beneficiary document now? How are solo 401K plan’s passed on to surviving children?
ANSWER: This is an excellent questions, as the retirement plan beneficiary rules is always a great question that should be addressed no matter how young the solo 401k owners are. While under federal law the spouse is the primary beneficiary by default unless he or she formally elects in writing to waive this important right, the contingent beneficiaries are generally the solo 401k owner’s children no matter their ages. Therefore, your 18 month old daughter may be named as the contingent beneficiary. As a matter of fact, the younger the beneficiary is the better. Reason being, the non-spouse beneficiary has the option to spread his or her distributions over his or her life expectancy and thus spread out the federal tax payments to Uncle Sam. Alternatively, the solo 401k non-spouse beneficiary may take a full lump sum distribution and pay the entire federal taxes, which could add up to a big tax hit because retirement account beneficiary distributions are taxed at income tax levels. To learn more about the solo 401k death distribution rules click here.
Thank You,
Vance E. in Virginia
ANSWER: This is an excellent questions, as the retirement plan beneficiary rules is always a great question that should be addressed no matter how young the solo 401k owners are. While under federal law the spouse is the primary beneficiary by default unless he or she formally elects in writing to waive this important right, the contingent beneficiaries are generally the solo 401k owner’s children no matter their ages. Therefore, your 18 month old daughter may be named as the contingent beneficiary. As a matter of fact, the younger the beneficiary is the better. Reason being, the non-spouse beneficiary has the option to spread his or her distributions over his or her life expectancy and thus spread out the federal tax payments to Uncle Sam. Alternatively, the solo 401k non-spouse beneficiary may take a full lump sum distribution and pay the entire federal taxes, which could add up to a big tax hit because retirement account beneficiary distributions are taxed at income tax levels. To learn more about the solo 401k death distribution rules click here.
Thank You,
Vance E. in Virginia
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