Educational information, not individual financial advice.
Key Takeaways
For many families, more wealth transfers through beneficiary designations than through wills. A 401(k) with a named beneficiary goes to that person at your death, regardless of what your will says. Getting these designations right — and keeping them current — is as important as any other estate planning task.
Each of these bypasses probate and goes directly to the named beneficiary, regardless of what your will says.
A common misconception: "My will leaves everything to my current spouse, so my ex-spouse (who is still named as 401(k) beneficiary from decades ago) won't get anything."
Wrong. The 401(k) goes to the named beneficiary — the ex-spouse. The current spouse has no claim on the 401(k), period.
Updating beneficiary designations after major life events (marriage, divorce, death of beneficiary, birth of child) is critical. Many courts have refused to override outdated beneficiaries even when the intent was clearly to name the current spouse.
Every beneficiary designation should have two levels:
Primary beneficiary. Receives the asset if they survive you. Usually a spouse.
Contingent beneficiary. Receives the asset if the primary beneficiary has died or disclaims. Without contingents, the asset goes to your estate (creating probate) if the primary has predeceased you.
Typical structure:
When naming children or multiple beneficiaries, specify how to handle pre-deceased beneficiaries:
Per stirpes ("by the branch"). If a beneficiary dies before you, their share goes to their children.
Per capita ("by the head"). Only surviving beneficiaries of each generation share.
Most families prefer per stirpes because it treats each "branch" of the family equally regardless of whether the parent is still alive.
You can name a trust as beneficiary instead of a person. Reasons:
Naming a trust as an IRA beneficiary has specific IRS requirements to preserve favorable tax treatment. An "see-through trust" meeting specific requirements allows the trust to receive distributions over the 10-year window or potentially longer for eligible designated beneficiaries.
The SECURE Act (2019) fundamentally changed inherited IRA rules for non-spouse beneficiaries:
Before SECURE (pre-2020): Non-spouse beneficiaries could "stretch" IRA distributions over their own life expectancy. A grandchild inheriting could spread distributions across 50+ years, minimizing annual taxation.
After SECURE: Most non-spouse beneficiaries must empty inherited IRA within 10 years. Annual distributions aren't required (except in some cases post-2022 IRS guidance), but the account must be zero by year 10.
Spouse beneficiaries can still treat the inherited IRA as their own, which effectively continues deferral until their own RMDs begin.
Eligible designated beneficiaries can still stretch:
For most adult children inheriting, the 10-year rule applies. Careful tax planning is needed to spread distributions across bracket-efficient years.
Inherited Roth IRAs are much better for beneficiaries than inherited Traditional IRAs:
This is one of the strongest arguments for Roth conversions during life for donors who expect to leave meaningful retirement balances to heirs.
10-year rule, fully taxable
10-year rule, tax-free
Every 3–5 years, or after major life events, audit your beneficiary designations:
Write these down somewhere your estate executor can find. Many beneficiary designations are hard to reconstruct after death.
The Beneficiaries and Distribution view in the Estate section of Horizons models how specific asset types pass to named beneficiaries, including the tax treatment each receives. You can run "what if" scenarios: what if all assets pass to a single spouse vs split between spouse and trust vs direct to adult children?
You name 'my children, equally' as contingent beneficiaries on your IRA. You have three children; one predeceases you and leaves two grandchildren of their own. The IRA says 'per stirpes.' How is the IRA divided?
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