Should You Name Your Minor Child as Beneficiary of Your 401(K)?

QUESTION

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

-Pondering Parent

ANSWER

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A: Dear Pondering:

Though you are technically allowed to name a minor child as beneficiary of your 401(k), IRA, or other employment-sponsored retirement account, it’s never a good idea. Minor children cannot inherit the account until they reach the age of majority—which is 18 in Michigan.

If a minor is listed as the beneficiary, upon your death your retirement account would be distributed to a court-appointed custodian, who will be in charge of managing the funds (often for a fee) until the age of majority. Then, when your child turns 18, all the money would be distributed to him or her outright, whether or not your child is mature enough to handle it responsibly. If you want your child to inherit your retirement account in a more responsible manner, you should set up a trust to receive those assets instead.

You can then name a trustee to manage the account until your child reaches a specified age (like, 25 or 30) or stage (like, upon graduating from college). 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 attorney, 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.

This article is a service of Legacy Counsel PLC, a trusts and estates law firm in Saint Joseph, Michigan. We don’t just draft documents; we ensure that you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Life and Legacy Planning Session, during which you will get more financially organized than you’ve ever been before and become empowered to make all the best choices for the people you love. You can begin by calling our office today at 269-932-4017 to schedule a Life and Legacy Planning Session. Or you can schedule your appointment online here. Mention this article to find out how to get this $750 session at no charge.