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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...
Pondering Parent Q & A
Q:
Can I tap into my retirement savings to pay for my child’s college education?
—Pondering Parent
A: Dear Pondering:
If your kids will need financial assistance, beyond student loans, to pay for their college education, it’s vital that the way in which you choose to save will not negatively impact their qualification for such assistance. To this end, while you can use your retirement funds to pay for college expenses, this can affect your child’s eligibility for various need-based financial aid programs.
Retirement funds withdrawn to pay college expenses are reported on the Free Application for Federal Student Aid (FAFSA) as additional income. Consequently, when using retirement funds, the expected family contribution used from FAFSA will be higher, which will therefore reduce your child’s chances of qualifying for financial assistance.
Consult with us as your Personal Family Lawyer if you choose to tap into your retirement...
Author
Sarah R. Breiner
Attorney
As your Personal Family LawyerĀ®, it's my mission to make sure your family makes the very best legal and financial decisions and is well-cared for throughout their lifetime and beyond
