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Beneficiary Designations and Why They Matter

17 August 2022

Last week, we talked about the ins and outs of retirement account required minimum distributions (RMDs).

This week, we focus on something all too often left undone, or left outdated – the beneficiary designations on your retirement accounts.

Why does this matter? Well, in a nutshell, because absent your specific instructions, the assets you worked so hard to accumulate might go to a person you’d prefer not to have them.

For most people, the logical choice of primary beneficiary is one’s spouse. In some states, Louisiana included, if the account owner’s spouse is not the sole primary beneficiary, s/he must sign a form that this is acceptable to them.

But for others, the question is more complex. If you are a young worker just starting to save for retirement, your parents might be the most appropriate primary beneficiaries, as next of kin. If you are older, with a spouse who has predeceased you, your children, if you have any, would be the usual choice.

In any case, once you have established the primary beneficiary(ies), it is time to turn to contingent beneficiaries. These, too, matter enormously, especially in case you overlook a necessary update to the primary beneficiary, if that beneficiary is no longer among the living.

For a married parent, the most prevalent model is:

  • Primary beneficiary = spouse
  • Contingent beneficiaries = children

But this may not be right for your family and situation. You may have massive assets outside your retirement accounts, well covering your nuclear family’s lifetime needs when you have gone, and might wish to leave a retirement account to another relation, or a friend, who will be in less well-off circumstances.

The important things are to:

  • Think carefully about who you want to leave these particular funds to.
  • Review your thinking on a regular basis (we would suggest at least annually, and any time you have a life-change), and amend your beneficiary designations (or not) accordingly.

You should also consider the potential tax implications to any potential beneficiaries, as these are an important variable.

Life-changes which should trigger a review of all beneficiary designations – on your retirement accounts and your life and disability insurance policies, too – include:

  • Marriage.
  • The birth of a child.
  • The death of a family member or other loved one – whether a designated beneficiary or not, as the death of someone close often reorders our priorities.
  • While we are always a little saddened to hear of a divorce, it does happen that people find themselves at odds, and, as St. Thomas More wrote in Utopia, find “other with whom they hope to live more quietly and merrily.”

Consider beneficiary designations as adjuncts to your last will and testament (which “last” is also superseded when you update it for the life events above). They are what lock in – to the extent of your power – the carrying out of your wishes.

And since they are that, it’s vital to make sure your will and your beneficiary statements all reflect those wishes – which will, as life goes on, evolve.

If your financial planner is on his or her toes, s/he will ask to review your will and beneficiary designations periodically – again, to ensure they are aligned with your life as it is at present, and will remind you to update them when you make a significant change to that life.

And if you are a little too busy to think about such things as beneficiary designations and potential tax implications, we invite you to consult with us – we can help do some of the figuring out for you, and make it easier for you to do the figuring out you need to do yourself, with the right questions, with compassion and empathy.

Because we are all in the same boat, and we know it.

Please click here to email us directly – let us know how we can help you.

Until next time –



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