Individual retirement accounts have different rules than 401(k) plans and other sponsored retirement plans. Both allow the account owner to select their beneficiary; however, federal law requires that spouses are designated as the primary beneficiary on sponsored plans. Outside of a few specific states, an individual retirement account may list a non-spousal beneficiary.
Spousal Rights to Property
Residents of Washington, Wisconsin, Idaho, Texas, Nevada, Arizona, New Mexico, California and Louisiana are required by community property laws at publication to name their spouse as a beneficiary on their individual retirement accounts. These requirements are waived if a spouse signs a waiver to forgo her rights. Other instances where these rights may not apply is in case the funds in an individual retirement account were inherited, or if the funds were contributed prior to the marriage. In Alaska, spouses may also elect to sign a community property agreement, which means the spouse would automatically be entitled to be beneficiary.
In states where community property laws do not apply, custodians of individual retirement accounts may require the spouse to sign a waiver of rights. In most cases, this is to prevent the spouse from having a claim in the event of the death of the account owner.
It is also important to note, that in the case of a rollover of a 401(k) or other qualified retirement account, the spousal waiver may not be required. Once the funds are rolled into an individual retirement account, the funds may no longer be subject to the federal laws applying to qualified accounts.
Divorce Decree Orders
Unfortunately, a spouse who is divorced from an account owner may be entitled to funds in an individual retirement account even if the divorce decree specifically states the spouse has no right to the account. It is critical to change beneficiary designation forms when there is a divorce. In these cases, even in community property states, there is no spousal waiver required. However, if the ex-spouse was listed as beneficiary and this was not changed after the divorce, she still may be entitled to receive individual retirement account beneficiary funds.
Protecting Your IRA
Individual retirement account owners who live in community property states must always obtain a waiver for a non-spousal beneficiary. However, even in states without community property laws, account custodians may require a spouse to agree to sign off as beneficiary. It is important to note that regardless of whether you live in a community property state or not, that employee-sponsored retirement plans may require spousal waivers.
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