Revisiting Your Beneficiary Designations (Part 1)
September 10, 2021
If you’re like most people, the last time you thought about your designated beneficiaries was when you set up your retirement accounts or life insurance policies. But while you might think of this as a ‘set it and forget it’ decision, there are many reasons you should review and update a beneficiary designation regularly. Here’s why.
Make Sure Your Wishes Are Set
Whether due to an oversight or a clerical error, it’s not uncommon for accounts to have no beneficiaries assigned. It’s possible for your paperwork to be processed with this omission, so your accounts and policies could be missing this critical information. If you do not select a beneficiary, many accounts will assign a default, such as your spouse or your estate, which may not align with your intentions.
Your Wishes May Have Changed
As you move through different transitions in life—marriage, divorce, death of a spouse, or the birth or adoption of a child or grandchild—it makes sense that your beneficiaries would need to be adjusted.
The need to revisit your beneficiaries could stem from anything that changes your perspective on who you would like to receive the money after your death. Perhaps you’ve had a falling out with a family member and you’d rather not include them as an heir. Your adult child married someone you consider untrustworthy, and you are concerned about what they will do. The charitable organization you planned to support no longer shares your values.
No matter how certain you are of your wishes now, they can always change, so review your accounts regularly and update them as needed.
Avoiding Income tax
It’s critical to ensure your IRA and employer retirement account beneficiary designations are in place and updated. If not, the accounts will pass to your estate and potentially be exposed to avoidable income tax. If this happens, your heirs may will be required to take their account distributions over 5 years instead of 10 which will accelerate income tax payments and may require taxation at a higher rate.
You should name both primary and contingent or alternate beneficiaries, in case the primary dies before you or at the same time as you. In the second article of this two-part series, we’ll cover what to consider when naming and reviewing your beneficiaries.
John A. Frisch, CPA/PFS, CFP®, AIF®, PPC™ founded Alliant Wealth Advisors in 1995 and has over 30 years of experience as a financial professional. In his free time, he’s an avid long-distance runner, a sport that requires discipline, patience and vision. John applies these same skills to his professional pursuits: He helps families and retirement plan sponsors adopt a patient, disciplined approach to overcoming financial challenges and reaching their distant goals along a clear path. Learn more at www.alliantwealth.com.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This material was prepared by Crystal Marketing Solutions, LLC, and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate and is intended merely for educational purposes, not as advice.