Many of us name beneficiaries when establishing a retirement account, but we often forget to review them. Keeping your beneficiaries up to date ensures your assets go to the right people and prevents unintended complications.
A common misconception is that an individual’s will determines retirement account beneficiaries. In reality, beneficiary designations override a will’s instructions. That’s why it’s crucial to assign beneficiaries for each retirement plan and review them regularly to ensure they align with your current wishes.
Who can be a beneficiary?
Beneficiaries can be individuals, such as a spouse, child, grandchild, sibling, or friend or an entity such as a trust, a charity or an estate. There are two types of beneficiaries:
- Primary Beneficiary: First in line to receive your assets.
- Contingent Beneficiary: Receives the assets if the primary beneficiary passes away before you.
To ensure your wishes are followed, you can choose a “per stirpes” option, allowing a deceased beneficiary’s children to inherit their share. You can also name multiple primary or contingent beneficiaries and divide the assets as long as the total equals 100%.
Tip: Check for any state or account-specific restrictions on designating beneficiaries. Some accounts require your spouse to be listed as a primary beneficiary or to receive a minimum percentage unless they provide written consent.
When should you update your beneficiaries?
Life changes can impact your beneficiary designations. Review and update them in these key situations:
- Major life events: Marriage, divorce, death, or the birth or adoption of a child
- Change in financial or estate planning goals
- Account transfers or rollovers: When moving funds to a new provider, such as a 401(k) rollover, your previous beneficiary designations may not carry over.
Tip: Maintain a beneficiary file listing of all your retirement accounts and their designated beneficiaries. This helps keep track of your choices and simplifies matters for loved ones in case of your passing.
In summary: Keep your plans up to date
A quick review of your retirement accounts can prevent future complications and ensure your assets are distributed as intended. Set a reminder to review your beneficiaries annually or after major life events. If you need guidance, contact us at First Community Trust.
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This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. The content is developed from sources believed to be providing accurate information; no warranty, expressed or implied, is made regarding accuracy, adequacy, completeness, legality, reliability, or usefulness of any information. Consult your financial professional before making any investment decision. For illustrative use only.