What Happens When You Disclaim Retirement Assets?

If you have been listed as the beneficiary on a retirement plan, you have the choice to disclaim the retirement assets. Many people assume they will never have to face this option; after all, most people want to claim their full inheritance. However, there are many scenarios in which you may determine you do not want to be listed as a beneficiary, and you will have the option to completely disassociate yourself with the plan under legal guidelines

Why Disclaim Retirement Assets?

The main reason to disclaim assets is to ensure another beneficiary receives the account or at least your share. For example, if your spouse dies, you may be listed as the beneficiary on his or her account along with your children. If you determine you have enough savings to retire comfortably without the pension plans, you are given the option to step down as beneficiary. The remaining assets would be divided between the remaining beneficiaries, your children, proportionately. Other beneficiaries may include charities and trusts.

Another potential reason to step down is inability to pay taxes on the account. When you inherit the money, it is considered part of your income. You must pay a tax on this inheritance as a result. You cannot pay that tax out of the retirement fund itself. If you cannot afford to pay the taxes, then you cannot inherit the account, and you must disclaim the benefits.

How do I Disclaim Retirement Assets?

You can submit your request to disclaim assets in writing to the plan custodian. You must do so within 9 months of the death of the primary account holder or within 9 months of turning the age of 21, whichever is later. Once you issue the request, you cannot revoke it. You cannot accept any payments from the account prior to submitting the request. Finally, you cannot take part in the decision of who benefits from your disclaimer. You must simply allow the plan custodian to resolve the inheritance according to the instructions provided by the account holder prior to his or her death.

What Happens When I Disclaim Retirement Assets?

As long as you follow all the legal guidelines, nothing further will happen to you when you disclaim retirement assets. You can simply step away from the retirement plan and leave the assets to another beneficiary. It is important to realize, though, that you have given up every legal claim you have or may have in the future to the account when you submit your request to disclaim the assets. If something should change in the future, you cannot suddenly request to have the assets back. 

If no beneficiary was designated on the account other than you, you may need to consider the default beneficiaries listed in a contract. This is typically a spouse first then surviving children assuming those children have not been disinherited. If the individual has neither a spouse nor surviving children and you are the only beneficiary listed on the account, the plan will typically default to the estate. This means the plan will be treated as another asset in the deceased's will.

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