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Question for the Money Doctors

Question submitted on Jun 20, 2011.

Question

In terms of the consequences to beneficiaries is it better to keep your money in the 401k plan of the employer you just left or put it into an IRA?

Answer

There are several differences to consider when rolling dollars from a employer plan to an IRA like being able to access a wider array of investments, possibly losing access to institutional level investments, change in creditor protection, etc.  However, regarding beneficiary consequences specifically, if you are married and a participant in a qualified retirement plan like a 401(k) you MUST designate the spouse as the primary beneficiary unless the spouse signs a waiver.  The other potential difference is the difference in the default language of the plan regarding per capita distribution and per stirpes distributions.  Be careful of the differences in these defaults between your qualified plan and the ira and check to see if they can be changed if you wish to change them.


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