Beneficiary designations determine who receives your retirement accounts, life insurance, and other assets. They often override your will, making them critically important—and commonly neglected.
Why Beneficiaries Matter
Watch Out
Beneficiary designations typically override your will. A decade-old beneficiary form can send money to an ex-spouse even if your will says otherwise.
Accounts with Beneficiary Designations
- 401(k) and 403(b) plans
- Traditional and Roth IRAs
- Life insurance policies
- Annuities
- Bank accounts (payable on death)
- Brokerage accounts (transfer on death)
Types of Beneficiaries
Primary Beneficiary
Who receives assets first. If living, they get everything.
Contingent Beneficiary
Who receives assets if primary is deceased. Backup recipients.
Per Stirpes vs. Per Capita
| Method | What Happens |
|---|---|
| Per Stirpes | If beneficiary dies, their share goes to THEIR heirs |
| Per Capita | If beneficiary dies, share splits among surviving beneficiaries |
Example: You name your 3 children. One passes away before you.
- Per Stirpes: Deceased child's share goes to their children (your grandkids)
- Per Capita: Two living children split everything 50/50
Common Beneficiary Mistakes
Mistake 1: Not Naming Beneficiaries
Assets go through probate. Delays, costs, and your wishes may not be followed.
Mistake 2: Naming Only Primary (No Contingent)
If primary dies first, assets go through probate anyway.
Mistake 3: Outdated Beneficiaries
- Ex-spouses still listed
- Deceased individuals named
- Children born after designation not included
Mistake 4: Naming Minor Children Directly
Minors can't receive assets directly. A court-appointed guardian controls the money until they're 18.
Mistake 5: Naming Your Estate
Loses stretch IRA provisions, may go through probate.
Best Practices
Review Annually
Add beneficiary review to your annual financial checkup.
Update After Life Events
- Marriage
- Divorce
- Birth of children
- Death of beneficiary
- Inheritance received
Keep Documentation
Save copies of all beneficiary forms. Keep them with important documents.
Consider a Trust as Beneficiary
For complex situations:
- Blended families
- Special needs beneficiaries
- Control over distributions
Pro Tip
A trust as beneficiary provides control but has tax implications. Consult an estate attorney.
Beneficiary Audit Checklist
| Account | Primary | Contingent | Last Updated | Notes |
|---|---|---|---|---|
| 401(k) at work | ||||
| Traditional IRA | ||||
| Roth IRA | ||||
| Life insurance | ||||
| Bank accounts | ||||
| Brokerage |
Special Situations
Married Couples
In most states, spouses have rights to retirement accounts. Naming someone other than spouse may require spousal consent.
Blended Families
Consider how assets flow:
- Current spouse vs. children from prior marriage
- Estate planning attorney recommended
Charitable Giving
IRAs can name charities. Charity pays no income tax on inherited IRA—full value goes to the cause.
Special Needs
Direct inheritance can disqualify someone from government benefits. A Special Needs Trust preserves benefits.
The SECURE Act Impact
As of 2020, most non-spouse beneficiaries must withdraw inherited IRAs within 10 years (no more lifetime stretch). This changes planning:
| Beneficiary | Rule |
|---|---|
| Spouse | Can roll to own IRA |
| Minor children | 10-year clock starts at age 21 |
| Disabled/Chronically ill | Life expectancy |
| Everyone else | 10-year rule |
Getting It Done
- List all accounts with beneficiary designations
- Gather current forms from each institution
- Review and update each one
- Save copies in a secure location
- Tell someone where the copies are
The Bottom Line
Quick Win
Schedule a beneficiary audit this week. Log into each account and verify your designations. It takes an hour and could save your family months of legal headaches and thousands in costs.
Beneficiary planning isn't just about money—it's about ensuring your wishes are honored and your loved ones aren't burdened with legal complications during an already difficult time.