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Ask a Fool: How Do My Retirement Account Beneficiaries Work?

By Matthew Frankel, CFP® - Oct 4, 2019 at 12:00PM

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Here's what to know about your retirement plan's beneficiary form.

Q: On my 401(k) enrollment form I'm asked to name beneficiaries. What is the difference between a primary and contingent beneficiary? How should I list my children?

Nobody likes thinking of their own mortality, but it's a necessary part of smart estate planning. This is especially true when it comes to retirement accounts because they're likely to hold a substantial portion of your wealth in your latter years.

When you're choosing your retirement plan beneficiaries, there are a few things you should know. First, your primary beneficiaries are the people who would get the money in your account if you were to die if they are alive at the time. Contingent beneficiaries are who would get the money if your primary beneficiaries die before you do.

If you're married, it's worth noting that your spouse would legally inherit your retirement account even if you left the beneficiaries blank. In fact, if you want to name anyone other than your spouse as your primary beneficiary, your spouse needs to sign a written waiver.

For example, I have my wife named as my primary beneficiary on my retirement accounts. I have my two children listed as contingent beneficiaries in case my wife dies before I do.

Speaking of children, that's another key point. You can list a minor child as a beneficiary, but your money will need to be put into a trust until they reach the age of majority. A good alternative is to name a trustee (either an individual or financial institution) now and name your child's trust as a beneficiary, but consult a tax professional before doing this.

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