Here’s something that surprises a lot of people: beneficiary designations on your retirement accounts and life insurance override your will. It doesn’t matter what your will says. If your 401(k) beneficiary form still lists your ex-spouse from 15 years ago, that’s who gets the money. The form wins. Every time.
Most people fill out beneficiary forms when they start a job and never look at them again. That’s how five-figure and six-figure mistakes happen. Here are the most common ones.
Mistake 1: Naming No Beneficiary at All
If you don’t name a beneficiary — or if all your named beneficiaries have died before you — the account typically goes to your estate. That sounds fine until you realize what it actually means: probate. Your family waits months (sometimes over a year) for a court to distribute the money. There may be legal fees. And for retirement accounts, the tax implications can be significantly worse when the estate is the beneficiary instead of an individual.
Every account that allows a beneficiary designation should have one. Primary and contingent. No exceptions.
Mistake 2: Forgetting to Update After a Life Event
Divorce, remarriage, birth of a child, death of a spouse. Each of these should trigger a beneficiary review. But people forget — or assume the will takes care of it. It doesn’t.
The classic scenario: someone divorces, remarries, and dies 10 years later. Their current spouse assumes they’ll inherit the 401(k). But the beneficiary form still lists the ex-spouse. In many states, the ex-spouse gets the money. There have been Supreme Court cases about exactly this situation, and the beneficiary form won.
Mistake 3: Naming a Minor Child Directly
You can name your kids as beneficiaries. But if they’re under 18 when you die, they can’t legally receive the money. A court will need to appoint a custodian or guardian to manage the funds until they reach the age of majority. That means more legal costs, more delays, and less control over how the money is used.
If you want to leave money to minor children, talk to an estate attorney about naming a trust as the beneficiary instead. It’s more complex to set up, but it gives you control over when and how the money is distributed.
Mistake 4: Not Naming a Contingent Beneficiary
Your primary beneficiary is who gets the money first. Your contingent beneficiary is the backup — who gets it if your primary beneficiary dies before you or at the same time. Without a contingent beneficiary, you’re back to the estate-as-default problem described in mistake number one.
Think of it like an insurance policy for your insurance policy. It takes 30 seconds to add a contingent beneficiary, and it prevents a scenario that could take your family months to resolve.
Mistake 5: Assuming All Accounts Work the Same Way
Different accounts have different rules. A 401(k) governed by ERISA requires spousal consent to name someone other than your spouse as the primary beneficiary. An IRA doesn’t have that requirement. A joint bank account passes to the surviving owner regardless of beneficiary forms. A payable-on-death (POD) designation on a bank account works differently than a transfer-on-death (TOD) designation on a brokerage account.
The point: don’t assume what works for one account works for all of them. Review each one individually. If you have accounts at multiple institutions — and most retirees do — create a list of every account, who the current beneficiaries are, and when you last updated them. That list alone is worth more than most people realize.
Set a calendar reminder to review your beneficiary designations once a year and after any major life event. It’s 30 minutes of work that could save your family months of legal headaches and thousands of dollars.
The Retirement bundle includes 15 step-by-step worksheets covering Social Security, Medicare, pensions, beneficiary updates, and more. Organizational tools for your next chapter. Browse planning tools at lumeway.co.
The paperwork you ignore today becomes the problem your family inherits tomorrow. A quick review now changes that.
This post is for informational purposes only and does not constitute legal, financial, or medical advice. Consult a licensed professional for guidance specific to your situation.