Why You Need to Update Retirement Plan Beneficiaries

None of us know when our time is up. What we do know is that we have complete control over who we want to receive our estate. My mom used to say, "Take the time to make decisions so someone else doesn't have to make them for you." What she was referring to was "end of life" decisions. But I take that advice with me through all my travels. Today I'm writing about how important it is to review the beneficiaries that you selected for your retirement accounts.

Just to clarify, IRAs and accounts that are considered retirement accounts (including 401(k)s, Roth IRA’s, employer plans, annuities, etc.) have a direct beneficiary (or more than one). When you die, these accounts will transfer directly to your beneficiaries and this designation takes precedence over your will. (For related reading, see: 4 Essential Estate Planning Documents for Everyone.)

Keeping Beneficiaries Updated

Often we go through life's transitions, with time passing very quickly and we don't review who the beneficiary was that we originally selected on our retirement accounts. As an advisor, I usually know when a client is going through a transition (such as divorce, job change, or maybe the birth of a child) and can prompt the change in their beneficiary. However, there are times when I don't know. Maybe you would like to leave assets to a charity or one child is receiving a house and you would like the other to receive your IRA. I've also seen scenarios where a client’s original IRA beneficiaries were their brother or sister because their children were too young. Now those kiddies are all grown up.

The Next Step

In addition, it is important to think through what would happen if one of the beneficiaries that you selected were to die before you. Do you want their share to go to the other beneficiaries or to their surviving descendants? If you would like it to go to their descendants, then it is important to select a per stirpes designation. This is typically a designation that is selected when an account is opened. (For more, see: Estate Planning for Beginners, Part One.)

After you have selected your primary beneficiary, it is a vital step to select a contingent beneficiary. A contingent beneficiary will come into play if your primary beneficiary were to die and there are no other beneficiaries selected. You might say, well if that happens, I will select another. Unfortunately, you might not remember to change your beneficiary. Also, what happens if you and that person were to die at the same time? This is particularly important for married couples as they often are in a car or travel together and their primary beneficiary is each other.

I'm hoping this post will prompt you to think about all of your retirement accounts to ensure that a complete review is performed. It is a good practice to review these beneficiaries with your advisor annually. (For more, see: Estate Planning for Beginners, Part Two.)


Milestone Wealth Advisors, Inc. is a Registered Investment Advisor. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.