By Tim Waterworth, CFP | Waterworth Wealth Advisors, LLC
The Short Version
You may spend decades building your 401(k), but the beneficiary form determines who receives the account when you die. Name both a primary beneficiary and a contingent beneficiary, and review the form whenever your family circumstances change.
Primary and Contingent Beneficiaries
The primary beneficiary is first in line. The contingent beneficiary is the backup if the primary beneficiary cannot inherit. Without an effective backup, the plan’s default provisions may determine who receives the account.
What About “Per Stirpes”?
If your plan offers a per stirpes option, it generally means that if a named beneficiary dies before you, that person’s share is intended to pass down that beneficiary’s family branch. It can be useful when you want a deceased child’s share to pass to that child’s descendants. Check your plan’s beneficiary form and procedures to understand exactly how the provision works.
Married? Check the Spousal-Consent Rule
Many plans require a married participant to obtain the spouse’s written consent before naming someone other than the spouse. If you want children, a trust, or another person to inherit your 401(k), do not assume that entering another name online is enough. Follow the plan’s procedures and complete any required spousal consent.
Children and Special-Needs Beneficiaries
Think carefully before naming a minor directly. A minor may not be able to manage the account, and court involvement or a guardian may be required. A trust may provide adult management and clearer instructions.
If a beneficiary has disabilities or receives means-tested government benefits, coordinate the designation with an attorney familiar with special-needs planning. An outright inheritance or improperly designed trust can affect management and benefit eligibility.
A Proper Designation Can Avoid Probate
Retirement accounts with valid beneficiary designations ordinarily pass according to the form rather than through the owner’s will. Naming the estate, or allowing the account to become payable to the estate under plan defaults, can bring probate into the process.
Take Five Minutes and Check
☐ Primary beneficiary named |
☐ Contingent beneficiary named |
☐ Names and percentages are correct |
☐ Minor and special-needs beneficiaries reviewed carefully |
☐ Naming someone other than a spouse? Check spousal-consent requirements |
☐ If I selected per stirpes, do I understand who would inherit if a beneficiary dies before me? |
☐ Review after marriage, divorce, birth, death, or another major family change |
Educational material only. Retirement plans differ. Consult the plan administrator and appropriate financial, tax, or legal professionals before changing beneficiary or trust arrangements.
