DayCents

Beneficiary

A beneficiary is the person or entity you name to receive an account or policy when you die — on retirement accounts, life insurance, and bank accounts. A named beneficiary passes directly to that person, bypassing probate and even overriding your will.

A beneficiary designation overrides your will, and it does so without argument: an ex-spouse still named on an old 401(k) inherits it regardless of what the will says or when the divorce happened. This is the most common and most avoidable estate mistake, and it costs nothing to fix — the form takes minutes. Name contingent beneficiaries as well, so the account does not fall into probate if the primary dies first. What the beneficiary can do with an inherited retirement account has also narrowed: most non-spouse beneficiaries must now empty it within ten years rather than stretching withdrawals across a lifetime, which concentrates the tax bill.