Problems with Naming a Minor as Your 401k Beneficiary

Naming your 401k beneficiary is a very important part of your estate planning. You want to make sure that the funds in your 401k go to the right person upon your death. However, you should consider avoiding naming a minor as your beneficiary. Here are a few problems with naming a minor as your 401k beneficiary.

Cannot Receive Proceeds

A minor, with the possible exception of a middle or older teen, will not be able to gain access to the money once you die. State law will, therefore, decide when a beneficiary who is a minor can get access to the money. He or she may not be able to get the money until 16 or 18 years of age.

Custody Problems

When you leave a substantial amount of money to a minor, he or she might experience custody problems as a result. If you do not clearly spell out who will have control over your child, he or she might go through a custody battle. If a child is left a substantial sum of money, there might be many potential guardians fighting over custody. The state might have to step in to appoint someone as the minor's legal guardian. In that case, that guardian would have some influence over what happens to the money after you are gone.

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