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Harvard Employees: The Overlooked Retirement Mistake That Could Cost Your Family

'Harvard employees should treat beneficiary updates as a critical part of their retirement checklist, since even the strongest savings strategy can fall short if outdated forms send assets to unintended recipients.' — Michael Corgiat, a representative of The Retirement Group, a division of Wealth Enhancement.

'For Harvard employees, keeping 401(k) and IRA beneficiary forms current is one of the simplest yet most powerful ways to help preserve your estate intentions and reduce complications for your loved ones.' — Brent Wolf, a representative of The Retirement Group, a division of Wealth Enhancement.

In this article, we will discuss:

The importance of keeping your 401(k) and IRA beneficiary designations current.
Common mistakes employees make with beneficiary designations.
How regular reviews can help align your estate and retirement plans.

The Value of Keeping Your 401(k) and IRA Beneficiary Forms Up to Date

by Tyson Mavar, CFP®, Wealth Enhancement

Many Harvard employees focus on building their retirement savings but may overlook one crucial detail—updating their 401(k) and IRA beneficiary forms. After finalizing a will, it’s easy to think your estate plan is complete. However, these beneficiary documents—not your will—determine who receives your retirement assets.

In most cases, the beneficiary designations take precedence over your will’s instructions. That means your 401(k) or IRA funds are distributed based on the most recent forms filed with your plan administrator. Outdated or incomplete beneficiary information can lead to costly and irreversible outcomes after death.

Why This Matters for Harvard Employees

The beneficiary listed on your retirement plan will receive those funds directly, regardless of what your will says. This could unintentionally exclude newer family members or benefit someone you no longer wish to include. Regularly reviewing your Harvard 401(k) and any linked IRA accounts after major life events—such as marriage, divorce, or the birth of a child—helps keep your intentions consistent with your current situation.

Common Beneficiary Mistakes

Naming the estate as beneficiary
According to IRS regulations, naming your estate creates a “non-designated beneficiary.” This limits distribution options and could eliminate certain tax advantages, like the spousal rollover or 10-year payout rule.

Leaving out contingent beneficiaries
Always list both primary and contingent beneficiaries. This allows for flexibility if the primary beneficiary predeceases you or declines the inheritance, preserving potential tax efficiencies for your family.

Not updating after a rollover or transfer
When you move funds—such as rolling your Harvard 401(k) into an IRA—new beneficiary forms are required. Each account keeps its own beneficiary record, and old designations do not automatically transfer.

Overlooking spousal rights
Under federal law, a spouse is typically the default beneficiary of a 401(k). To name another beneficiary, your spouse must sign a formal waiver. This rule applies to most corporate retirement plans, including those at large employers.

Ignoring beneficiary updates after divorce
For ERISA-governed plans like 401(k)s, plan administrators must follow the designation on file even if a divorce decree states otherwise. Some states automatically revoke an ex-spouse’s designation for IRAs, but federal plans do not.

Failing to coordinate with trusts
If a trust is meant to manage your retirement assets, it must be correctly named as a beneficiary and meet IRS “see-through” rules. Otherwise, your trust may lose intended tax and estate planning advantages.

The Value of Regular Review

Even a well-organized estate plan can be undermined by outdated beneficiary forms. Periodically confirming your Harvard retirement account designations can help align your estate intentions and reduce future tax complications.

At The Retirement Group , we work with Harvard employees to coordinate estate, trust, and retirement planning strategies.
To review your beneficiary designations and retirement plan coordination, call us at (800) 900-5867 .

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Sources:

1. IRS — Publication 590-B: Distributions from IRAs (2024) Author: Internal Revenue Service. Create date: 2024 edition. Pages referenced: pp. 8–10.

2. GAO — Retirement Security: DOL Could Better Inform Divorcing Parties about Dividing Savings (GAO-20-541) Author: U.S. Government Accountability Office. Create date: July 31, 2020. Pages referenced: p. 1 (highlights), pp. 5–6 (QDRO overview), p. 10 (spousal/survivor & default to spouse in DC plans), pp. 12, 15–16, 32 (process & pitfalls).

What are the key distribution options available to employees at Harvard University upon retirement, and how do these options differ regarding tax implications? Employees should understand both the annuity options and lump-sum distributions available under the Harvard University Retirement Plan, as these can significantly affect their financial outcomes in retirement. Harvard University provides various choices depending on the lump-sum value, and it's essential to analyze each choice carefully to maximize retirement benefits.

Key Distribution Options: Upon retirement, Harvard University employees can choose between a lump-sum distribution, a rollover to another retirement account, or an annuity with different options, including a single-life annuity or joint and survivor annuity(Harvard University Reti…). Lump-sum payments may lead to immediate tax liabilities, while annuity options offer more tax-deferred growth(Harvard University Reti…).

How does the choice of an annuity payment method impact the long-term financial security of retirees at Harvard University? Employees need to weigh the advantages and disadvantages of single life versus joint and survivor annuities, considering not only their own financial needs but also those of potential beneficiaries. The decision can affect monthly income levels and the benefits passed on to surviving partners or dependents.

Impact of Annuity Payment Method: Choosing a single-life annuity maximizes monthly payments but provides no benefits after the retiree’s death. A joint and survivor annuity reduces monthly payments but ensures ongoing income for a surviving spouse or beneficiary, offering more long-term financial security for both parties(Harvard University Reti…).

What specific conditions must be met for a retired employee of Harvard University to elect the Consolidated Harvard Annuity Option (CHAO), and what benefits might this offer? Understanding the eligibility criteria for CHAO and its implications on retirement planning will help employees make informed decisions. The CHAO allows for a potential increase in annuity benefits, but there are specific deadlines and requirements that participants must adhere to.

Consolidated Harvard Annuity Option (CHAO): To elect the CHAO, employees must terminate their employment after April 30, 2006, and have a Basic Retirement Account balance exceeding $1,000. They must elect the CHAO within 60 days of termination to exchange their investment account for a higher annuity(Harvard University Reti…)(Harvard University Reti…).

How can employees at Harvard University ensure that they have properly designated beneficiaries within their retirement plans, and what are the ramifications of failing to do so? The importance of keeping beneficiary designations up to date cannot be overstated, as it impacts how benefits are distributed upon the participantâ€™s death. Employees must familiarize themselves with the required forms and the potential consequences of having outdated or incorrect designations.

Beneficiary Designations: Employees should ensure their beneficiary designations are up to date by completing the appropriate forms. Failure to do so could result in benefits being distributed according to marital status or to unintended recipients(Harvard University Reti…).

In what ways do the spousal consent rules affect the retirement options for married employees of Harvard University, and why is this a critical aspect to consider when planning for retirement? Understanding the spousal consent requirements is vital for retirees since failing to adhere to these regulations can lead to unintended consequences, including issues related to benefit disbursement. Employees should seek to navigate these requirements carefully to secure their desired benefit structure.

Spousal Consent Rules: Married employees must obtain spousal consent, witnessed by a notary or plan representative, if they choose a retirement distribution option that does not provide survivor benefits to their spouse(Harvard University Reti…). Failure to adhere to these rules can result in complications with benefit disbursement(Harvard University Reti…).

How does the $1,000 threshold affect retirement distribution choices for employees retiring from Harvard University, and what specific options are available once this threshold is considered? Employees need to be informed about the options that arise based on the value of their Basic Retirement Account when making distribution decisions. Knowing whether an annuity or lump-sum option is available can significantly influence retirement planning and benefits.

$1,000 Threshold: If an employee's Basic Retirement Account value is $1,000 or less, they must take a lump-sum payment or rollover, as annuity options are unavailable. The lump-sum is subject to tax withholding unless rolled over(Harvard University Reti…).

What steps should employees at Harvard University take if they wish to defer their retirement distributions, and what factors should they consider before making this decision? Deferring distributions can offer various tax advantages and impact retirement income strategies. Employees should evaluate their financial situations, anticipate future needs, and understand the timelines involved in the deferment process to make sound choices.

Deferring Distributions: Employees can defer their distributions until the April 1st following the year they turn 70½. Deferring can offer tax advantages and allow time for the value of retirement funds to grow(Harvard University Reti…).

What are the consequences of electing a lump-sum distribution from a retirement account at Harvard University, particularly in terms of immediate and long-term tax implications? Employees considering a lump-sum distribution must recognize that such options can lead to significant tax liabilities and potential penalties, especially if improperly managed. A thorough understanding of these financial repercussions can aid in making choices that align with retirement goals.

Lump-Sum Distribution Consequences: Opting for a lump-sum distribution can result in substantial tax liabilities, including early withdrawal penalties if under age 59½. However, rolling the distribution into another retirement account can mitigate tax impacts(Harvard University Reti…).

How can employees contact the Harvard University Retirement Center to learn more about their retirement plan options, and what information should they prepare before reaching out? Understanding how to access information and ask the right questions is crucial for employees looking to navigate their retirement options effectively. Having personal details and specific inquiries ready when contacting the Harvard University Retirement Center will facilitate a more productive dialogue.

Contacting the Retirement Center: Employees can reach the Harvard University Retirement Center at 800-527-1398 for information. They should have their pension statement, retirement account details, and any specific questions prepared(Harvard University Reti…).

What should employees at Harvard University consider when choosing whether to roll over their retirement benefits into another employer's retirement plan or an IRA? The decision to roll over retirement benefits comes with various implications, including investment choices, fees, and the overall management of retirement funds. An in-depth understanding of the pros and cons of rollover options will empower employees to make informed decisions that best suit their financial futures.

Rollover Options: Rolling over retirement benefits into another employer’s plan or an IRA allows employees to maintain tax-deferred growth. It is crucial to compare fees, investment options, and withdrawal rules before making a decision(Harvard University Reti…).