What is a Beneficiary? And Other Important Questions

All of your retirement accounts—your Traditional IRA, SEP, SIMPLE, Roth IRA, your 401Ks from past and present employers, 403(b)s, and deferred-compensation employer plans—have beneficiary forms. Whoever you name as your beneficiary will receive the assets or funds in your account(s) when you pass away. This allows you to provide for your loved ones when you are gone.

What is the difference between primary and contingent beneficiaries?

There are two kinds of beneficiaries: the primary beneficiary and the contingent beneficiary. Your primary beneficiary (or beneficiaries, as you can have more than one) is the first in line to inherit your assets. Your contingent beneficiary will be next in line to inherit your assets if your primary beneficiary is deceased or can’t be found.

How many beneficiaries can I have?

There is no limit to the number of beneficiaries, primary or contingent, you can have on one account. You can differentiate the allocation percentage for each beneficiary as well. For example, you may want your spouse to receive 50% of your assets and the remaining 50% to be split amongst your siblings.

What happens if no beneficiary is named on a 401k, IRA, or other retirement accounts?

If no beneficiary is named, your assets go to your estate, and the government decides on distribution—which means neither you nor your family has control over government decisions. If you didn’t name a beneficiary, it could take months or years for a probate court to decide the value of those assets and where they will end up.

Who can I not name as a retirement beneficiary?

You cannot name your estate as your beneficiary. However, if you’ve not named a beneficiary, all your assets will go to your estate, giving the government complete control over the contents of your retirement accounts.

Choosing your retirement beneficiaries

Most individuals name spouses and children as beneficiaries—but that’s not always the case. Be intentional about naming your beneficiaries so that you can continue taking care of your loved ones even after you’re gone.

Consider who you want to provide for.

Remember that you can name more than one person as your beneficiary, and you can differ the allocation to all those named. If any of your beneficiaries are high earners, you should be aware that you could run the risk of bumping them into a higher tax bracket by leaving them with an inherited IRA. If you name a minor, you should also designate a custodian or financial planner to assist them in receiving and handling the asset.

Do an annual review of your beneficiaries.

Every year—and after major life changes—log into your retirement account(s) to review and update your beneficiaries. Keeping your beneficiary form updated is a gift that you can give to your loved ones to ensure they are easily able to receive what you intend for them.

Questions about beneficiaries? NDTCO can help!

Please give us a call at 877-742-1270 if you have questions. 

Written by: Chris Tanner