People often spend many years of their lives saving for retirement. When the time comes, many retirees depend on the income provided from a pension plan, which is a type of retirement fund. In the event that a person dies before the retirement benefits are depleted, the money can be distributed to a pension beneficiary. To select this recipient, one may consider a host of factors including a person’s age, their relationship to the retiree, as well as their ability to responsibly manage money.
Pensions have different laws that dictate the way that assets must be handled. Oversight differs based on regulation in a country or even by the employer or plan administrator. Although some of the advantages associated with a pension might be lost of a plan member dies, such as health benefits, an heir is likely to be assured income for a period of time.
Married individuals are likely to have fewer choices in comparison with a single person. A husband or wife may be required to leave the payout to a spouse. If that partner legally agrees to surrender rights to benefits, however, the decision could leave the plan member with more flexibility on who to name as a pension beneficiary. Also, if a partner dies before the pension plan member, the need for a spouse’s approval becomes irrelevant. When given the option, consider naming a secondary recipient of benefits so that if the primary heir passes away your money is handled in a way that is acceptable to you.
If the child of a retiree is named as a pension beneficiary, he or she may not be entitled to the money before reaching a minimum age. You may hire a trustee to oversee and protect the benefits until the child becomes old enough for the distributions. Also consider a young person’s maturity and ability to manage large sums of money before naming a pension beneficiary.
When retirement funds are distributed in one lump sum versus monthly payments there are generally harsh tax implications. There may be ways to lessen the severity of taxation for whomever is named as a recipient. One such tactic could be to postpone federal charges. This may be accomplished by delaying access to the money, instead directing benefits into a separate individual retirement account, for example. Before naming a pension beneficiary, you may want to consider the responsible nature of the intended recipient.