Dave Ramsey Warns Not to Overlook This Crucial 401(k) Form

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When you open a 401(k) account, Dave Ramsey says to make sure you complete your beneficiary form. Here’s why taking care of this task is so important. 

Opening a 401(k) account is one of the most important steps you can take if you want to save for retirement. The good news is, it’s pretty easy to do. Unlike when you open an IRA and need to find a brokerage firm to hold your account, your employer takes care of the administrative tasks associated with a 401(k). All you must do is enroll in your plan at your workplace.

When you do enroll, though, there are a lot of forms you need to fill out. And finance expert Dave Ramsey warns there is one in particular that you can’t afford to forget about.

Make sure you fill out this form and keep it up to date

Ramsey cautioned that it’s important for anyone who is opening a 401(k) to be certain they complete their beneficiary designation form.

“This is where you state who will receive your 401(k) money if you die,” Ramsey explained. He explained that for those with a spouse and children, completing this form is usually pretty easy upfront — but then it ends up getting forgotten and this could be a problem.

“This is one form people tend to truly fill out and forget,” he said. “In some cases, people have divorced and are remarried, but their 401(k) would still go to their ex if they died because they never updated their beneficiaries. Other times, the investor may have had children, but forgot to add them to the form.”

You don’t want the wrong person to inherit your retirement money because you overlooked some simple paperwork, so Ramsey’s warning here is an important one to heed. You can’t forget to make sure this form is up to date at all times.

How to choose your 401(k) beneficiary

If you are married, you may be required to designate your spouse as your 401(k) beneficiary unless they waive their right to inherit the account. You’ll want to make sure you understand these rules when you decide who is going to inherit the funds.

If you don’t have a spouse, think about what close relatives or loved ones would benefit from inheriting the money that you have available. This could be your children or other people who are dependent on you or who you want to provide for financially.

You can also consider your beneficiary designation as part of your larger estate planning process. For example, you may decide to purchase life insurance to provide for some dependents while leaving your 401(k) balance to others.

The important thing is to make an informed choice, complete your form, and keep it up to date by contacting your employer’s human resources department or signing into your online 401(k) account to modify your beneficiary if your life needs change. You should also name a contingent beneficiary if your 401(k) forms allow it, which is a person who will inherit if your primary beneficiary is unable to because they passed before you.

Remember that whoever is designated as the beneficiary is going to be the one who gets the account funds, so follow Ramsey’s advice and make sure this important form is not one you overlook.

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