and Probate Law Firm
403(b) Accounts and Estate Planning
As an estate planning lawyer in Portland, I work with clients who work for the public and nonprofit sectors and are therefore entitled to special benefits. One of these benefits, 403(b) accounts, also known as tax-sheltered annuity plans, are retirement savings accounts offered to employees of certain tax-exempt organizations, such as public schools, hospitals, and nonprofit organizations. These accounts can play a role in estate planning in several ways:
- Beneficiary Designation: When you open a 403(b) account, you are required to name one or more beneficiaries who will inherit the account upon your death. The beneficiary designation takes precedence over any instructions in your will or trust. It is important to keep your beneficiary designations up to date to ensure that your assets go to the individuals or entities you intend.
- Spousal Rights: If you are married and you designate someone other than your spouse as the primary beneficiary of your 403(b) account, your spouse may need to provide written consent to waive their spousal rights. This consent is required to protect the spousal rights in certain circumstances, and the rules can vary by state and plan.
- Estate Inclusion: The value of your 403(b) account is generally not included in your probate estate, as it passes directly to the designated beneficiaries. This can help streamline the distribution of assets and may allow your beneficiaries to access the funds more quickly.
- Estate Taxes: The federal estate tax may apply to large estates, and the assets in your 403(b) account are included in your taxable estate for federal estate tax purposes. If your estate is potentially subject to federal estate tax, you may need to consider strategies to mitigate the impact, such as gifting, using a marital deduction, or leveraging your lifetime estate tax exemption.
- Stretch IRAs: If you name a younger beneficiary, such as a child or grandchild, they may have the option to “stretch” the distributions from the inherited 403(b) account over their life expectancy. This can provide significant tax advantages and is an estate planning strategy to consider when selecting beneficiaries.
- Trusts as Beneficiaries: It’s possible to name a trust as the beneficiary of your 403(b) account, but this requires careful planning and the use of a specialized trust, often referred to as an “accumulation trust” or “see-through trust.” Consulting with an attorney experienced in estate planning and retirement accounts is crucial if you intend to use a trust in this manner.
- Charitable Contributions: You can include provisions in your estate plan to donate the remaining balance of your 403(b) account to a qualified charity upon your death. This can be a tax-efficient way to support a charitable cause while reducing potential estate tax liabilities.
- Spousal Rollover: If your spouse is the beneficiary of your 403(b) account, they may have the option to roll over the account into their own retirement account, such as an Individual Retirement Account (IRA), which can provide additional tax flexibility and control.
Estate planning is a complex area, and the impact of 403(b) accounts on your estate plan can vary depending on your individual circumstances, the size of your estate, and your specific goals. It’s advisable to consult with an experienced estate planning attorney in Portland who can help you navigate the complexities and ensure your retirement accounts are integrated into your overall estate plan effectively. If you any questions about 403(b) accounts and estate planning, contact Thapar Law at 503-295-9741 or send us a message.
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