Q&A: Can I leave my 401(k) to my minor children when I die?

QUESTION

Q: Can I leave my 401(k) to my minor children when I die?

–Pondering Parent

ANSWER

A: Dear Pondering:

Though you can technically name a minor child as a beneficiary of your 401(k), IRA, or other employment-sponsored retirement accounts, it’s never a good idea. Minor children cannot inherit the account until they reach the age of majority—which can be as old as 21 in some states.

If a minor is listed as the beneficiary, upon your death, your retirement account would be distributed to a court-appointed custodian, who will manage the funds (often for a fee) until the age of majority. If you want your child to inherit your retirement account, you should set up a trust to receive those assets instead.

You can then name a trustee to manage the account until your child comes of age. By doing so, you get to choose not only who would manage your child’s money, but within the trust’s terms, you can stipulate how and when the account’s funds should be distributed and used, which can help them from being lost or squandered.

As your Personal Family Lawyer®, we can help you create a trust to hold your 401(k) for your minor children to ensure your heirs get the maximum benefit from your retirement savings.

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