The single most consequential 90-second planning exercise most people never get around to.
Prepared for anyone with retirement accounts, life insurance, or brokerage accounts.
Planning for your future can feel overwhelming. Between your 401(k), Roth IRA, brokerage accounts, life insurance policies, college savings plans and other assets, it’s easy to lose track of what needs attention.
One of the most overlooked parts of financial planning is keeping your beneficiary designations up to date. The good news? Checking and updating them often takes less than 90 seconds, and it’s completely free.
The key is remembering that beneficiary designations aren’t something you set once and forget. Major life events, like getting married, divorced, having children, or losing a loved one, should all trigger a review. A beneficiary designation that was correct five years ago may no longer reflect your wishes today.
Let’s walk through the simple steps to make sure your beneficiary designations are accurate, up to date, and aligned with the people you want to protect.
Why This Matters More Than Most People Realize
Most people make one of four estate planning mistakes:
- Name only one beneficiary
- Fail to update their designations after major life events
- Have an outdated or unclear will
- All of the above
What many people don’t realize is that beneficiary designations override your will. In fact, for most households, the majority of their wealth passes through accounts with designated beneficiaries, meaning the will actually controls only a minority of the estate.
For example, if your will leaves everything to your spouse, but your 401(k) lists your ex-spouse as beneficiary from 1998, your ex-spouse receives the 401(k). The will doesn’t change that. Courts consistently enforce beneficiary designations as written, making it critical to review and update them whenever life changes.
Accounts that pass by beneficiary designation, not by will:
- IRAs (traditional, Roth, SEP, SIMPLE)
- 401(k), 403(b), 457 plans
- Life insurance policies
- Annuities
- HSA accounts
- Transfer-on-death (TOD) brokerage accounts
- Pay-on-death (POD) bank accounts
Four Priorities to Watch For
1. No beneficiary at all
Accounts with no beneficiary designation default to the estate which then goes through probate. Probate is public, slow (often 6-18 months), and expensive (typically 2-5% of estate value in many states). For an IRA, the consequences are worse with distributions to the estate requiring accelerated payout, often within five years and the worst possible tax brackets.
For example, a $1M IRA with no beneficiary, paid to the estate over five years at average brackets, can lose 30-40% to taxes that a properly designated beneficiary would have avoided.
2. Outdated beneficiaries
Designations made years ago that no longer reflect current intent:
- An ex-spouse from a prior marriage
- A deceased parent
- A sibling rather than a current spouse
- Children listed by name without per stirpes language (a deceased child’s share goes elsewhere, not to that child’s children)
- Adult children listed equally without consideration for special needs, addiction, or substantial income disparity
3. Primary beneficiary only, no contingent
One thing to highlight, is that most designations include a primary beneficiary, fewer include a contingent. Having multiple beneficiaries listed helps avoid the account going to the estate and back to probate in the event that your primary predeceases you.
4. Understanding the trust structure
The most technical estate-planning error we encounter is that generic revocable trusts are NOT qualified to receive IRA distributions efficiently. Naming a trust as beneficiary of a retirement account requires careful drafting.
The trust is funded for non-retirement assets, but the retirement accounts still point to individuals directly, bypassing the trust and any tax-efficient distribution language the trust contains.
The Two-Minute Audit You Should Do This Week
Log into every account you own. For each, confirm:
- Is there a primary beneficiary? If not, fix it today.
- Is the primary current? Is it the person you actually want to receive this account if you die today?
- Is there a contingent beneficiary? If not, add one.
- For multiple beneficiaries: per stirpes or per capita? Per stripe means deceased children’s shares pass to their children. Per capita means deceased shares are redistributed among living beneficiaries. They produce very different outcomes.
- Does your trust attorney know which accounts name your trust? If you have a trust, the IRA beneficiary structure should be coordinated.
A Few Specific Scenarios Worth Flagging
Single parent of minor children
Naming minors directly is something to avoid because they cannot legally inherit until the age of majority. Instead, use a trust as beneficiary, with a competent successor trustee designated, and trust language that distributes per your wishes.
Blended families
These situations require extra care. A simple beneficiary designation may not distribute assets as intended, while a properly drafted QTIP or marital trust can help balance the needs of a surviving spouse and children.
Special-needs beneficiaries
A properly drafted Special Needs Trust as beneficiary preserves both the inheritance and the benefits eligibility. Without that and only naming them directly as IRA beneficiary, they could be disqualified from means-tested public benefits.
Charity as beneficiary
For households giving meaningfully at death, naming charity as beneficiary of a portion of the IRA is one of the most tax-efficient legacy strategies available. The charity receives the full IRA balance (no tax, since the charity is tax-exempt). The heirs receive other assets that step up on the basis of death. Tax-efficient on both sides.
The SECURE Act and the Inherited IRA Rules
Since the original SECURE Act (2019), non-spouse beneficiaries of inherited IRAs generally must withdraw the full balance within 10 years. The “stretch IRA” strategy that previously allowed multi-decade tax deferral has been eliminated for most beneficiaries.
Exceptions (the “Eligible Designated Beneficiary” class) include:
- Surviving spouses (still get the stretch and rollover options)
- Minor children (until age of majority; then 10-year rule begins)
- Disabled or chronically ill individuals
- Beneficiaries less than 10 years younger than the original owner
Planning implication: a $2M inherited IRA to an adult child must be fully distributed within 10 years, pushing $200K+ of additional taxable income onto that child’s tax return for each of those 10 years. For high-earning adult children, this often pushes them into the top federal bracket.
Strategies to mitigate: Roth conversions during the original owner’s lifetime, IRA-to-charitable-remainder-trust strategies for the legacy portion or simply leaving more to charity from the IRA and more to children from taxable assets (which receive a step-up in basis at death).
What should you do now? If you can’t remember the last time you reviewed your beneficiary designations, that’s your sign to set aside 30 minutes this week or review them with us as part of your financial planning.
This document is for educational purposes only and does not constitute tax, legal, or investment advice. WLTH Capital Management, LLC is a registered investment advisor. Strategies discussed may not be appropriate for all investors. Please consult your tax advisor and financial advisor on application to your specific situation.