Leaving Retirement Money To Stepchildren

Ed Slott & Company

Of course you can do it...you just have to be careful how it’s done.

Posted October 25, 2012

By Ed Slott & Company

Many of you have stepchildren. It’s perfectly fine to name stepchildren as the beneficiary of your retirement funds. However, care must be taken when naming them as the beneficiary.

In an employer plan, such as a 401(k) or pension plan, if you are married, you will need your spouse’s consent to name someone other than your spouse as the plan beneficiary. This rule applies whether you want to name your natural, adopted, or stepchildren as the beneficiary.

In a recent court case, an employee died and under the terms of his employer’s retirement plan, the funds went to his “children.” The plan administrator determined that his stepsons were not “children” and paid the funds out to another beneficiary. The court agreed with the plan administrator. In hindsight, the employee should have specifically named the stepchildren as his beneficiaries.

In an IRA, naming stepchildren or anyone as beneficiary is easier because spousal consent is generally not necessary. When filing out an IRA beneficiary form with a financial institution, ideally don’t write “my children” on that form. Instead, write their specific names on the form to avoid any confusion as to who you want to get your IRA money after you die.

Filling out a beneficiary form is a very important decision and care should be taken.

Ed Slott and Company has been called "The Best" source for IRA advice by The Wall Street Journal, and "America's IRA Experts" by Mutual Funds Magazine. Ed is a widely recognized professional speaker and author. Get more IRA information from America's IRA Experts.