Spousal Waivers and IRAs

Friday, June 21, 2013

By Beverly DeVeny, IRA Technical Expert

Follow Me on Twitter: @BevIRAEdSlott

You are married and have an IRA. You know you need to name a beneficiary for those funds. But what if you do not want to name your spouse as the beneficiary? Are you required to name him or her? Under federal law, and IRAs are governed mostly by federal law, you are not required to name your spouse as your IRA beneficiary. You can name anyone you want as the beneficiary. They don’t even have to be a relative.

State law will have some impact here, though. If you live in a community property state, you will most likely need to have your spouse sign a waiver before you can name a non-spouse beneficiary for your IRA funds. In some states, you can “disinherit” your spouse by naming someone else on the beneficiary form, but the spouse could have the last laugh. Some states allow a disinherited spouse to make a right of election against the estate and the spouse would then end up with some of your assets. He or she could then laugh all the way to the bank.

In most employer plans, if you are married and want to name someone other than your spouse as the beneficiary of your plan benefits, you must have your spouse sign a waiver.

Be careful who signs the waiver. It must be a spouse. Documents signed by a fiancé, such as a pre-nuptial agreement, do not count. Once a spouse signs a waiver, update the beneficiary form. You should do both steps to ensure that your assets go to the beneficiaries that you select.

Divorce decrees also don’t count. A spouse can waive rights to retirement benefits in a divorce decree, but as long as a beneficiary form naming the spouse remains in place, that spouse – now the ex-spouse – will, in most cases, end up with the retirement benefits. Always update beneficiary forms after a divorce.

Beneficiary form reviews should be a key component of your financial plan, whether you are your own planner or you have a professional doing this for you. You can see how something that seems so simple can quickly become complicated.

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