Beneficiary designation review

Beneficiary designations are instructions attached to financial accounts and insurance policies that direct who receives the assets upon the owner's death. The critical thing to understand is that beneficiary designations override your will and trust.

27 steps across 7 sections

1. Retirement Accounts

  • 401(k) / 403(b) / 457(b) plans (employer-sponsored)
  • Traditional IRA and Roth IRA
  • SEP IRA and SIMPLE IRA
  • Pension plans (defined benefit)
  • TSP (Thrift Savings Plan) for federal employees
  • Annuities (both qualified and non-qualified)

2. Insurance

  • Life insurance policies (term, whole life, universal)
  • Accidental death and dismemberment (AD&D) policies
  • Long-term care insurance (death benefit riders)

3. Bank Accounts

  • POD (Payable on Death) accounts — checking, savings, CDs, money market accounts
  • Totten trusts (in-trust-for accounts)

4. Investment Accounts

  • TOD (Transfer on Death) brokerage accounts
  • TOD stock and bond registrations

5. Other

  • Health Savings Accounts (HSAs) — spousal beneficiary receives as HSA; non-spouse receives as taxable income
  • 529 College Savings Plans — successor owner designation
  • U.S. Savings Bonds — co-owner or beneficiary registration
  • Cryptocurrency exchange accounts — some platforms now support beneficiary designations
  • Digital payment accounts (e.g., PayPal, Venmo) — limited beneficiary options; check terms of service

6. Eligible Designated Beneficiaries (Exceptions to the 10-Year Rule)

  • Surviving spouse
  • Minor children of the account owner (not grandchildren) — but once they reach the age of majority, the 10-year clock starts
  • Disabled individuals (as defined by IRS standards)
  • Chronically ill individuals
  • Beneficiaries not more than 10 years younger than the deceased account owner

7. Planning Implications

  • Tax bracket management A large lump-sum distribution in year 10 could push beneficiaries into a much higher tax bracket. Spreading withdrawals over the 10 years is generally more tax-efficient.
  • Roth conversions Converting traditional IRA assets to Roth during your lifetime means beneficiaries inherit tax-free Roth assets (still subject to the 10-year withdrawal window, but no income tax on distributions).
  • Trust beneficiaries Trusts named as beneficiaries face complex rules. "See-through" (conduit and accumulation) trusts have different tax consequences under the SECURE Act. Consult an estate planning attorney.
  • Spousal rollovers A surviving spouse can roll the inherited account into their own IRA, treating it as their own, which is usually the most tax-advantaged option.

Common Mistakes

  • Ex-spouse still listed as beneficiary
  • No beneficiary named at all
  • No contingent beneficiary
  • Beneficiary designations contradict the will
  • Naming minor children directly

Pro Tips

  • Create a beneficiary designation inventory
  • Request confirmation copies
  • Coordinate with your estate planning attorney
  • Consider per stirpes designations
  • Use trusts for minor beneficiaries

Sources

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