A few questions can help you choose the beneficiaries for your retirement account that help ensure your savings are used as you intend.
Quick takeaways
You build up your retirement savings over a lifetime. And if something should happen to you, those hard-earned funds can help your chosen beneficiaries—loved ones or a cause you care about, for example.
How can you choose beneficiaries for your retirement savings? Use these five considerations.
Many people choose to name a spouse, child(ren), or a loved one as a beneficiary. (You can also choose multiple beneficiaries and designate a percentage of your retirement savings for each.) Those people are a good place to start when considering who will be your beneficiary. But as your life changes, your beneficiaries should too. Divorce, marriage, birth, or loss can all affect who you want to name. Use your annual review (see step #5 below) to keep your beneficiaries updated.
When you name beneficiaries, you’ll generally be asked to indicate a primary (first choice) and contingent (second choice). Depending on the plan, you may need spousal consent to name someone other than your spouse as beneficiary. In addition, whoever is named as a beneficiary supersedes a will. For example, if you re-married but forgot to change your retirement account beneficiary from a previous spouse, there’s no way to contest that designation.
While you can choose a person or organization as a beneficiary, you can also designate a trust. Why would this benefit you and your heirs? A trust offers more control, helping to manage when and how assets (like your retirement funds) are used. For example, maybe you want to designate the retirement funds are to be used for educational expenses; a trust as a beneficiary allows you to do that.
If your plan does not require naming a beneficiary and you neglect to do so, funds generally go to a spouse (if you’re married) or your estate (if you’re single). In the case of the latter, the courts will decide distribution of the funds, which can be a lengthy, expensive process.
If you name a child under age 18 as a beneficiary of your retirement account, you’ll also want to choose a custodian. That person then manages the money until the child reaches an age you designate. If you don’t name a custodian, the state may name someone for your estate that you didn’t expect or want.
You may also designate a church, school, or nonprofit organization as a retirement account beneficiary. Why would you want to do this? For some, choosing a nonprofit organization as a beneficiary is a meaningful way to reflect values or show support for an effort or cause that’s mattered to them during their lifetime. One note: Check your retirement plan’s rules for designating someone other than a spouse as a beneficiary. Some require a spouse’s consent for this option.
As your life changes, your beneficiaries may change, too. Set up a time, either annually or after a life change such as marriage, divorce, adding a child to your family, or a death, to review your beneficiaries. A good check-in time may be when you’re signing up for benefits each year at your workplace, or when you’re filing taxes.
What’s next?
To review your beneficiaries if you have retirement savings with Principal, Log in to your Principal account Click on the account name on the left side of your dashboard. Under “Overview” scroll down to “My beneficiaries,” and follow the instructions.
