Plot spoiler: LGBT couples are treated differently than heterosexual marriages when it comes to inheriting IRA’s. Here’s how to avoid having disapproving Aunt Sally end up with your dough.
The US federal government doesn’t recognize the marriages of gay and lesbian couples. Consequently, LGBT folks have to take extra steps to make sure that, in the event of their death, their assets are distributed in accordance with your wishes.
A. What Happens When You Die
Not to get morbid or anything, but some folks die prematurely. Best to plan now (just in case) rather than later. A last will and testament delivered via Ouiji board will not be admissible in most courts of law.
In the event of your death, the assets in your 401(k) will be transferred into a traditional IRA. If you had a Roth 401(k) it will be transferred into a Roth IRA. Everything in this post that refers to an “IRA” also refers to a “401(k).”
B. The Beneficiary Form
The best and simplest way to transfer your IRA assets to your intended heir, is to name him/her/them on the IRA’s beneficiary form. Keep it updated, and keep a copy.
Not only does the beneficiary form make it clear who gets the money, assets transferred through a beneficiary designation don’t go through probate– they are available immediately to the recipient. If you don’t fill out the beneficiary form (and if you don’t have a will), your assets are transferred “by law” which usually means that the heirs will be your parents and/or siblings — perhaps not what you had in mind.
C. Rich Straight People Really Are Different
When a federally-recognized spouse inherits an IRA, he/she can usually just roll the assets over into his/her own IRA account. The assets grow tax-free until funds are withdrawn in retirement (or until the heir reaches the age of required minimum distributions, 70 1/2).
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