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Wealth management is more than just investment advice – it includes all aspects of a client’s financial life.

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Wealth management is more than just investment advice – it includes all aspects of a client’s financial life.

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At Virtus Wealth Management, we believe we can help you no matter what age you are, what life stage you are in, or how much money you are working with. We want you to feel educated, empowered, and involved in the planning of your financial future.

Planning for Retirement and Choosing a Beneficiary

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  • Planning for Retirement and Choosing a Beneficiary

by | Feb 11, 2020

Retirement planning is about more than planning the fun things you want to do when you earn your freedom from your nine to five. It’s also about creating a future free of financial stress for you and your family. It’s also about being prepared in case anything should happen to you or your spouse.

When you first open that 401(k) as you started your job with your company years ago, you may not have known who to list as your beneficiary. Things may be different now but if you haven’t updated your paperwork then your loved ones may be left in the cold. Having outdated 401(k) paperwork isn’t unusual. But, perhaps it’s time to revisit choosing a beneficiary.

Update Your Retirement Planning Strategy

Your family grows with each of your marriages and each of your children. It’s important to ensure you’re keeping your beneficiaries up to date with each major life change. The last thing you want is for your family to have to deal with additional stresses after they’ve just lost you. Unfortunately, it’s not uncommon as many people forget to update their beneficiaries.

Many people put off thinking about their own death because they either feel that they have plenty of time to do so later, or it makes them uncomfortable. However, pausing briefly to consider what would happen to those around you can help you make better decisions when selecting beneficiaries. One way to think of this is to view the bequests as gifts. Gifts you want to leave to people who should have them.

The Beneficiary Naming Process

Most retirement planning involves naming a primary beneficiary and a contingent beneficiary. In the event of your passing, your retirement assets would go to your primary beneficiary. If your primary beneficiary has passed away before or at the same time as you, then your retirement assets would go to your contingent beneficiary.

It’s important to understand that the designations for your 401(k) beneficiaries will override the contents of your will. This is another reason why it’s so important to update your retirement paperwork as needed. You can’t rely on a will to handle the disbursement of your retirement account. Updating your will and not your 401(k) can be a costly mistake to your loved ones.

Another common mistake is that people will name children as their beneficiaries. However, if the child or children are minors, they cannot inherit funds as direct beneficiaries.

Designation and Allocation

Your 401(k) comes with a beneficiary form which asks for at least one primary and contingent beneficiary. If you don’t assign beneficiaries and you pass away, then your 401(k) is considered undesignated. It will go to probate court, which is the last thing you want your loved ones to endure after your death.

To fully cover all circumstances, you must name both a primary beneficiary and at least one contingent beneficiary. Understand that once the primary beneficiary receives the assets then your contingent beneficiaries lose all claims to those assets. Contingent beneficiaries only come into play if your primary beneficiary is also deceased prior to the asset disbursement. Therefore, should the primary beneficiary be living at the time of your death then 100% of your assets will go to them.

In some cases, you may want your assets split between multiple primary beneficiaries. You can do this easily. Simply list the beneficiaries and which percentage of your retirement assets you’d like them to have. For example, if you have another account to take care of your spouse then you may choose to allocate only a percentage of your 401(k) assets to your spouse and leave the rest for your children.

However, it’s important to know that accounts governed by the Employee Retirement Income Security Acts require a spouse waiver if the spouse’s allocation is less than 50%. This requirement ensures that your spouse is not left indigent if you assign all your assets directly to your children or anyone else. It also helps if there are disputes after your death.

Another common practice is to assign 100% to the spouse as the primary and then make ones children the contingency beneficiaries. Making things as clear as possible will save your family additional trauma and heartache after your passing.

Children as Beneficiaries

If you want to list your children as your beneficiaries, then there are additional steps to take if those children are minors. In the event of your death, a guardian must be provided to oversee the use of the funds. If you don’t name one, then the court will appoint a guardian. The best option is to set up a trust in the children’s names with a named trustee. Doing so with an attorney or your financial planner’s assistance allows you to specify the circumstances in which the children can come into their inheritance.

You can also consider setting up a testamentary trust with an attorney. You can name the trust as a beneficiary and when it expires the beneficiary receives control of the assets. Typically, testamentary trusts expire with a specific event, such as the child reaching a certain age.

Review and Update Your Retirement Planning Strategies

Whatever you decide regarding your beneficiaries today, make sure you’re reviewing and updating your decisions. It’s important, at the very least, to do this whenever going through major life changes such as:

  • Marriage
  • Divorce
  • Death of a spouse
  • Death of a parent
  • Birth of a child

Likewise, you’ll want to update your plan if any of your beneficiaries pass away before you do or if you acquire or sell any major assets. If you leave your 401(k) account to your estate then the money will go to probate court. This can significantly delay the distribution when your loved ones need it most.

It’s always a good idea to consult with a wealth management company, an estate-planning specialist, a retirement planning specialist, or a tax expert.

Call Virtus Wealth Management today at (817) 717-3812 to speak with our experienced retirement planning team.


The information provided here is for general information only and should not be considered an individualized recommendation or personalized investment advice.

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