4 Simple Steps for Naming Beneficiaries and Why It Matters

4 Simple Steps for Naming Beneficiaries and Why It Matters

Key Takeaways

    Control how your assets will be distributed

    Name primary and secondary beneficiaries for your retirement accounts

    Understand that beneficiary forms supersede heirs named in wills or trusts

    Review and update your designations after major life events

“I’m single.” “My estate isn’t large enough.” “I don’t like to think about death.” Do any of these sound familiar? They’re just some of the many excuses people use to put off estate planning. However, there’s a good reason why you shouldn’t procrastinate—if you don’t decide how to distribute your assets, the state will do it for you, and the outcome may not be what you intended.

To document your intentions, you might draft a will, create a trust, or name a joint owner, all of which are valid options. However, if you have an IRA or participate in your employer’s retirement plan, you’ll need to complete a beneficiary form to designate who will inherit that money. And it’s not just your retirement accounts; consider naming beneficiaries for brokerage accounts as well.

Let’s take a closer look at what’s involved with naming a beneficiary for your accounts.

4 Simple Steps for Naming Beneficiaries and Why It Matters

FIGURE 1: KEEP IT SIMPLE. Consider taking these steps to name your account beneficiaries. Many factors, such as your goals and personal situation, may influence how you decide to distribute your assets. 401(k) and other qualified employer-sponsored retirement plans require that your spouse consent if you wish to name someone else as your beneficiary. Additional requirements may also apply for these plans. Please contact your benefits department to learn more.

Whom Can You Pick?

In general, you can designate whomever you want—family members, friends, charities, and so on. But there are some nuances in the rules that may influence your decision.

    Qualified employer-sponsored retirement plans. If you’re married, your spouse must be your primary beneficiary unless he or she consents to you naming someone else.  
    Minor children. Children under the age of 18 (or 21, depending on the age of majority in your state) can’t receive your assets directly. So you would need to either appoint a guardian to manage the funds until the child is old enough or create a trust.  
    Charity. It’s a good idea to check with organizations first to see if they can accept investment or retirement account proceeds as a charitable donation. If so, make sure to ask for the charity’s full legal name, address, and tax identification number. You’ll need this information to complete the beneficiary form. 

It’s also a good idea to designate a contingent (secondary) beneficiary, the person who will inherit your account if the primary beneficiary isn’t alive at the time of your death. For example, if your spouse is your beneficiary and you both die in an accident, your funds would pass to your contingent beneficiary. If by chance you didn’t name one, then as discussed earlier, the state will decide who gets your money.

Set a course for retirement that’s right for you

Once your beneficiary inherits your account, they’ll have to decide what to do with the money. Their options will vary based on their relationship to you and the type of account. For example, your spouse might be able to leave the money in your IRA, while a friend may have to take a distribution. If you’re concerned about leaving a loved one with a tax bill, you may want to consult a tax professional to help understand the potential impact of your decision.

How Can You Divide Your Assets?

You can designate more than one person as your primary or contingent beneficiary. But picking more than one means you’ll have to decide how much to give each individual. The easiest decision might be to give everyone an equal share, but you don’t have to. You can generally allocate your money any way you want as long as the total equals 100%. For example, let’s say you name your two adult children as the primary beneficiaries of your IRA. You could split your account 50/50, or you could give one 60% and the other 40% based on their financial situations. The choice is yours.    

How Do You Document Beneficiaries?

Your beneficiary designation isn’t official until you’ve submitted a beneficiary form to your employer or the financial institution that holds your retirement account. On the form, you typically have to provide the beneficiary’s name, relationship to you, Social Security Number, and contact information. And once on file, your beneficiary designation will remain in effect unless you submit an updated form.  

It’s also important to note that your beneficiary form supersedes any heirs named in your will or trust. So if your will says your favorite charity should receive your IRA, but the beneficiary form on file says something else, the individual(s) named on the form will inherit your account. Make sure all your estate-planning documents reflect the same information to help avoid potential conflicts and feel more confident your wishes will be carried out. You should also inform each of your beneficiaries to help ensure a smooth disbursement process.   

If you’re a TD Ameritrade client, you can now edit your beneficiaries electronically for retirement and taxable accounts, including individual and joint tenants with rights of survivorship (JTWROS) accounts. See figure 2. 

4 Simple Steps for Naming Beneficiaries and Why It Matters

FIGURE 2: MANAGING BENEFICIARIES. There are four steps to managing beneficiaries on the TD Ameritrade website. Select Client Services > My Profile > Personal Information > Manage Beneficiaries. Source: tdameritrade.com. For illustrative purposes only.

And if you need additional help, you can always Ask Ted, our virtual assistant, by selecting the Support button at the top of the page.

4 Simple Steps for Naming Beneficiaries and Why It Matters

FIGURE 3: ASK TED. Source: tdameritrade.com. For illustrative purposes only.

When Should You Review Your Beneficiaries?

Life happens, and it’s essential that your designations keep pace with it. Divorce, marriage, birth of a child, and similar events are all good times to review your beneficiaries and update as needed.

Here’s an all-too-common cautionary tale: suppose you get divorced, then remarried, but you never update your IRA beneficiary information. Upon your death, the current spouse contacts the financial institution only to discover that the former spouse is still listed as the beneficiary and therefore is the rightful heir to the account. You can imagine the turmoil that ensues. Keeping your information current may help minimize any additional stress your loved ones may face after you’re gone.        

Good Intentions Aren’t Enough

You’ve worked hard to build your savings, so it only makes sense that you, not the government, should decide how your assets will be distributed. But you can’t assume people will know your intentions or honor them unless they’re written down in a legal document like a beneficiary form. Take some time to review the beneficiary information for your TD Ameritrade retirement account. If you need help adding a beneficiary, call 800-669-3900 to speak with a TD Ameritrade representative.  

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