Beneficiary Designation: How It Works, Who to Name, and the Mistakes That Cost Heirs
Figures checked October 29, 2026 against primary sources
For many families, the biggest money a person leaves behind does not pass through a will at all. A 401(k), an IRA, a life insurance policy and often a bank or brokerage account go straight to whoever is named on a beneficiary form. That form is short and easy to forget, and it usually wins over anything your will says. This guide explains how designations work, who you can name, the federal rules on spouses and divorce, and what the people you name will have to do with the money.
The Short Answer
- A beneficiary designation is an instruction to the account provider, not part of your will. The plan, insurer or bank pays the person named on its own form.
- The form usually overrides your will. The Supreme Court has held that an ERISA plan must pay the beneficiary named under the plan documents, and federal rules say a will cannot name a Thrift Savings Plan beneficiary.
- In a 401(k), your spouse generally gets the account unless they consent in writing to someone else, with the consent witnessed by a plan representative or a notary.
- Divorce may not remove an ex-spouse. Many states revoke a former spouse's designation automatically, but federal law overrides those state laws for ERISA plans and federal employee life insurance. Change the form yourself.
- Most non-spouse heirs of a retirement account must empty it within 10 years. If the owner had already reached the required beginning date, they must also take yearly distributions in years 1 through 9.
- A payable-on-death bank account is insured up to $250,000 per beneficiary, for up to 5 beneficiaries: a maximum of $1,250,000 per owner per bank for all trust accounts combined.
- Name a contingent beneficiary on every account, and check the forms after a marriage, divorce, birth or death.
What a Beneficiary Designation Is
A beneficiary designation is a form you file with the company or agency that holds an account or policy. It names who receives that asset when you die. The Supreme Court has described these as "will substitutes": assets that pass at death without going through probate, such as life insurance, pension accounts and revocable trusts (Sveen v. Melin, 2018).
Because the account provider pays directly, the money usually reaches your beneficiary faster than assets that wait for a probate court. It also means the provider looks only at its own records. It does not read your will, your divorce papers or a note in your desk drawer, unless a specific law or court order requires it to.
Which Accounts Use One
| Account | How the beneficiary is named | Rule to know |
|---|---|---|
| 401(k), 403(b) and other employer plans | Plan's beneficiary form | Spouse is the default in most private-employer plans; naming someone else needs written spousal consent |
| Traditional and Roth IRA | Custodian's beneficiary form | Heirs follow the inherited IRA distribution rules |
| Life insurance and annuities | Insurer's beneficiary form | Payout goes to the named beneficiary, outside probate |
| Health savings account (HSA) | Custodian's beneficiary form | A spouse keeps it as an HSA; anyone else owes income tax on its full value |
| Bank account (POD) | Payable-on-death beneficiary in the bank's records | FDIC trust-account coverage applies |
| Brokerage account (TOD) | Transfer-on-death registration | Available where state law allows it; ask your broker |
| Thrift Savings Plan | TSP beneficiary designation (formerly the paper Form TSP-3) | A will cannot name a TSP beneficiary |
| FEGLI life insurance | Form SF 2823 | Signed and witnessed by two people; a will change counts only if it meets the same rules |
Real estate can pass the same way in some states through a transfer on death deed. Anything without a beneficiary or a co-owner usually goes through your will or your state's intestacy rules.
Why the Form Beats Your Will
A will controls your probate estate. A beneficiary designation controls a contract or plan. When the two disagree, the account provider follows the form.
- Employer retirement plans: in Kennedy v. Plan Administrator for DuPont (2009), an ex-wife had waived her rights to her ex-husband's savings plan in their divorce decree, but she was still named on his form. The Court held the plan administrator "properly disregarded the waiver" and paid her, because she was the beneficiary named "in accordance with plan documents."
- TSP: federal rules state plainly: "A participant cannot use a will to designate a TSP beneficiary" (5 CFR 1651.3(d)).
- FEGLI: by statute, a designation or change "in a will or other document not so executed and filed has no force or effect" (5 U.S.C. 8705). OPM's form explains that a will can change a FEGLI beneficiary only if two people witnessed your signature and your agency or OPM received the will before your death.
The practical lesson: writing "my IRA goes to my daughter" in your will does nothing if the IRA form still names someone else. Update the form. See how to make a will and living trust vs will for the rest of the plan.
Primary vs Contingent Beneficiaries
Your primary beneficiaries inherit first. Your contingent (secondary) beneficiaries inherit only if no primary beneficiary survives you, or if a primary beneficiary disclaims (formally refuses) the inheritance.
You can name several primary beneficiaries and split the account by percentage. The shares must add up to 100%. The TSP, for example, rejects a designation whose primary shares do not total 100% and allows up to 20 primary and contingent beneficiaries combined (5 CFR 1651.3).
If you name no contingent and your only primary beneficiary dies before you, the account falls to the plan's default order. That is often your spouse, then your estate, which can mean probate and worse tax treatment (see naming your estate).
Per Stirpes vs Per Capita
These Latin terms decide what happens to a beneficiary's share if that beneficiary dies before you.
- Per stirpes ("by the branch"): a deceased beneficiary's share passes down to their own descendants.
- Per capita ("by the head"): a deceased beneficiary's share is split among the surviving beneficiaries in the same group, and that person's children get nothing from this account.
Hypothetical example: you name your three children as equal primary beneficiaries of a $300,000 IRA. One child dies before you, leaving two kids of their own. Per stirpes, each surviving child gets $100,000 and the two grandchildren split $100,000. Per capita, the two surviving children get $150,000 each and the grandchildren get nothing.
Not every form offers both options, and providers define the terms in their own paperwork. If the form says nothing, the plan's default applies. The TSP, for one, pays a predeceased designated beneficiary's share pro rata to your other designated beneficiaries (5 CFR 1651.10). If you want grandchildren to step into a child's place, check the box or ask the provider how to do it.
Naming a Minor
You can name a child, but a minor generally cannot take legal control of the money. If you name a child directly, a court may have to appoint a guardian to receive it. OPM's FEGLI form warns that when insurance goes to a minor child, "a court will usually have to appoint a guardian to receive payment."
Two common alternatives:
- A custodian under your state's Uniform Transfers to Minors Act (UTMA). Many forms let you write "[custodian name], as custodian for [child] under the [state] UTMA." The custodian manages the money until the age your state's law sets, and then the child gets it outright.
- A trust for the child. A trust lets you choose the ages and conditions for payouts and a trustee to manage them. It costs more to set up.
For retirement accounts, a minor child of the account owner is an "eligible designated beneficiary" and can take smaller yearly distributions until age 21. The 10-year clock then starts (see below). Grandchildren and other minors do not get this treatment.
Naming a Trust
Naming a trust makes sense when a beneficiary is young, has a disability and receives means-tested benefits, has trouble with money, or when you want control after you are gone (for example, in a blended family).
For an IRA, a trust is not itself a "designated beneficiary." But IRS Publication 590-B says the trust's beneficiaries are treated as designated beneficiaries if all four of these are true:
- The trust is valid under state law (or would be, apart from having no assets).
- The trust is irrevocable, or becomes irrevocable at the owner's death.
- The trust's beneficiaries can be identified from the trust document.
- The trustee gives the IRA custodian the documents it requires.
A trust that meets these tests is often called a "see-through" trust. One that fails them can be treated like an estate, with faster payout rules. Trust drafting for retirement accounts is technical, so have an estate attorney write or review it. A revocable living trust is a separate tool, compared in living trust vs will.
Naming Your Estate (and Why It Is Usually Worse)
You can name your estate, and some accounts default to it when no beneficiary survives. It is usually the worst choice for three reasons:
- Probate. The money goes through the court process, with its time, fees and public record, which the beneficiary form would have avoided.
- Faster taxes on retirement accounts. An estate is not an individual, so it is not a designated beneficiary. If the IRA owner died before the required beginning date, Pub 590-B says the 5-year rule applies: the whole account must be paid out by December 31 of the year containing the fifth anniversary of the death. If the owner died on or after that date, payouts are based on the owner's remaining life expectancy. Either way, heirs lose the 10-year window an individual would have had.
- Creditors. Assets in the estate can be reached by the estate's creditors before heirs get anything.
Spousal Consent for 401(k) Plans
Since the Retirement Equity Act of 1984, federal law has protected spouses in private-employer retirement plans. For a 401(k) or other profit-sharing plan to avoid the annuity rules, the plan must pay the participant's vested balance in full to the surviving spouse at death, unless there is no spouse or the spouse consents to another beneficiary (ERISA section 205, 29 U.S.C. 1055; the tax code mirror is IRC 401(a)(11)). Pension plans that pay annuities must offer a qualified joint and survivor annuity, governed by IRC 417.
The consent must meet the statute's terms. The spouse must consent in writing, the consent must acknowledge its effect, and it must be "witnessed by a plan representative or a notary public." Use the plan's own consent form.
Points to know:
- A plan may require that you were married for at least one year before your death for the spouse rule to apply (IRC 401(a)(11)(D)).
- Government plans and most church plans are outside ERISA (29 U.S.C. 1003(b)), so their own rules apply. The TSP, for instance, lets you name anyone "without the knowledge or consent" of your spouse.
- The federal spousal consent rule covers employer plans. IRAs are not employer plans, but a spouse may still have rights under state law, especially in community property states. Ask an attorney if you plan to leave an IRA to someone other than your spouse.
- If you remarry, the new spouse gets the protection. A 401(k) form naming your children, signed before the marriage, generally needs the new spouse's written consent to hold.
Divorce and Old Designations
This is where the most money goes to the wrong person.
State law. Most states have revocation-on-divorce laws for wills. Many have extended them to beneficiary designations. In Sveen v. Melin (2018), the Supreme Court noted that 26 states had adopted laws substantially similar to the Uniform Probate Code rule that a divorce revokes a beneficiary designation naming the former spouse. The Court upheld Minnesota's version, even applied to a life insurance policy bought before the law passed. The rules differ by state, so do not assume yours does this.
Federal override. Those state laws do not reach every account:
- ERISA plans (most private-employer 401(k)s, pensions and employer group life insurance): in Egelhoff v. Egelhoff (2001), Washington's automatic-revocation statute was held preempted by ERISA. The ex-wife was still named on his life insurance and pension. The Court reversed state rulings that had given both to his children.
- A divorce decree is not enough on its own for an ERISA plan. In Kennedy (2009), a waiver in a divorce decree that was not a qualified domestic relations order (QDRO) did not stop the plan from paying the ex-spouse named on the form.
- FEGLI: in Hillman v. Maretta (2013), the Court held that federal law preempted a Virginia statute that would have let the widow recover FEGLI proceeds from the ex-wife who was still the named beneficiary. FEGLI does pay according to a divorce decree or related court order that expressly provides for it, but only if the employing agency (or OPM, after separation) received it before the death (5 U.S.C. 8705(e)).
The only reliable fix: after a divorce, file new beneficiary forms for every account, and make sure any divorce order that splits a retirement plan is a QDRO the plan has accepted.
Federal Employees: TSP and FEGLI
Thrift Savings Plan. If you have no valid designation, the TSP pays by a fixed order of precedence: first to your spouse, then to children and descendants of deceased children, then parents, then the executor of your estate, then next of kin (5 CFR 1651.2, following 5 U.S.C. 8424(d)). To name anyone else, file a designation. For it to be valid, 5 CFR 1651.3 requires that it:
- be signed and dated by you and by one witness age 21 or older (a witness named as a beneficiary gets nothing),
- give primary shares that add up to 100%,
- cover your traditional and Roth balances together (you cannot name different beneficiaries for each),
- reach the TSP before your death and within 365 days after you sign.
The paper form was long called Form TSP-3. When the TSP moved to its new recordkeeping system in 2022, its board said it was moving beneficiary designations online and would stop using the "TSP-3" name. You can change a TSP beneficiary at any time without anyone's consent. A surviving spouse's share is moved into a beneficiary participant account in the spouse's name (unless it is under $200, which is paid by check).
FEGLI. Federal Employees' Group Life Insurance uses Standard Form 2823. Under 5 U.S.C. 8705 the order of precedence without a designation is: widow or widower, then children and descendants of deceased children, then parents, then the executor or administrator of your estate, then other next of kin. The form must be signed in front of two witnesses, neither of whom can be a beneficiary, and received by your agency (or OPM, if you are retired) before your death. OPM's form notes a designation is automatically canceled 31 days after you stop being insured.
For the investment side of the plan, see TSP funds explained.
What Beneficiaries of Retirement Accounts Must Do
Who you name changes how fast the money must come out, and so how much tax your heirs pay. The full rules are in our inherited IRA guide. The parts that matter when you fill out the form:
Eligible designated beneficiaries can stretch payments over their life expectancy. IRS Publication 590-B (2025) lists them: "the owner's surviving spouse, the owner's minor child, a disabled individual, a chronically ill individual, or any other individual who is not more than 10 years younger than the IRA owner." Under the final regulations, a minor child reaches majority on their 21st birthday, and the 10-year clock starts then.
Everyone else who is an individual (adult children, grandchildren, friends) falls under the 10-year rule from the SECURE Act, for owners who died after 2019. Pub 590-B: the beneficiary must withdraw the entire balance by December 31 of the year containing the 10th anniversary of the owner's death. Its example: if the owner died in 2025, the account must be emptied by December 31, 2035.
Yearly withdrawals in years 1 through 9. The answer depends on when the owner died:
- Owner died before the required beginning date (generally April 1 of the year after the owner reaches the applicable RMD age, which is 73 for people born 1951 through 1958): Pub 590-B says "no distribution is required for any year before the 10th year."
- Owner died on or after the required beginning date: the final regulations (T.D. 10001, published July 19, 2024) require annual distributions to continue during years 1 through 9 and the account to be emptied by the end of year 10. The IRS waived penalties for missed annual distributions in 2021 through 2024; the requirement applies from 2025. The 10-year deadline was not extended by that relief.
- Roth IRAs are treated as if the owner died before the required beginning date, so a non-spouse heir has no annual requirement in years 1 to 9, only the 10-year deadline.
A missed required distribution costs an excise tax of 25% of the shortfall, cut to 10% if corrected within the correction window (IRC 4974). Our RMD table and RMD calculator show the owner's side.
Spouses get the most options. A surviving spouse can treat an inherited IRA as their own, roll it into their own IRA or employer plan, or stay a beneficiary. Staying a beneficiary can be better for a spouse under 59½ who needs the money, because rolling over can expose withdrawals to the 10% early-withdrawal tax. A non-spouse cannot roll the account into their own IRA. They can only move it by trustee-to-trustee transfer into an inherited IRA kept in the deceased owner's name for their benefit.
HSAs follow different rules. Under IRC 223(f)(8), a spouse beneficiary keeps it as their own HSA. For anyone else, the account stops being an HSA at death and its full fair market value is taxable income to that beneficiary for that year. Naming your spouse first usually saves the most tax. For the rest of the tax picture, see inheritance tax.
Bank POD Accounts and FDIC Coverage
A payable-on-death (POD) account, also called in-trust-for or Totten trust, is what the FDIC calls an "informal revocable trust." Since April 1, 2024, the FDIC insures all of one owner's trust accounts at the same bank (POD accounts, revocable living trusts and irrevocable trusts combined) up to $250,000 times the number of eligible beneficiaries, counting at most 5 beneficiaries (12 CFR 330.10). That caps coverage at $1,250,000 per owner per bank.
Hypothetical example: you hold $600,000 in POD accounts at one bank naming your three children. Coverage is 3 x $250,000 = $750,000, so the whole $600,000 is insured. If you named only one child, coverage would be $250,000.
- Beneficiaries must be named in the bank's records for a POD account.
- Contingent beneficiaries do not count. Someone who would inherit only if another beneficiary has died is not counted.
- Eligible beneficiaries are people and IRS-recognized charities and non-profits.
- Trust coverage is separate from your single and joint account coverage at the same bank.
FDIC insurance covers deposits only. A brokerage TOD account holding stocks or funds is not FDIC insured, no matter whom it names.
How to Check and Update Your Beneficiaries
- List every account. Workplace plans (including old ones from past jobs), IRAs, life insurance (work and private), annuities, HSAs, bank and brokerage accounts.
- Look up the current designation. Most providers show it online. If not, call and ask for it in writing. Do not rely on your memory of a form signed years ago.
- File a new form where anything is wrong. Use the provider's own form or online tool. Include full names and, where asked, dates of birth or Social Security numbers so the provider can find people later.
- Get spousal consent where needed, signed in front of a notary or plan representative, if you are married and naming someone other than your spouse on a 401(k).
- Keep confirmations. Save the provider's confirmation that it received and accepted the change.
- Repeat after life events: marriage, divorce, a birth or adoption, a death, a new job, or a rollover (give the new account its own beneficiary form).
A beneficiary review fits into the wider checklist in estate planning basics. If you are the one inheriting, start with what to do with an inheritance.
Common Mistakes
- Leaving an ex-spouse on a 401(k) or work life insurance. Federal law can override your state's divorce rule (Egelhoff, Hillman).
- Naming no contingent beneficiary, so the account falls to the plan default or your estate.
- Naming a minor outright, which can force a court guardianship.
- Naming your estate and adding probate plus faster payout rules for a retirement account.
- Relying on the will to change who gets an account.
- Forgetting old plans from former employers, and forms lost in a rollover.
- Naming someone on means-tested benefits directly, which can affect their eligibility. A properly drafted trust is the usual alternative; ask an attorney.
- Uneven splits by accident. Leaving one child the IRA and another the house can be very different after tax, because the IRA money is taxable income to the heir.
- Using a witness who is also a beneficiary on a TSP or FEGLI form. That beneficiary gets nothing.
FAQ
Does a beneficiary designation override a will?
Usually, yes. The account provider pays the person named on its own form. For employer plans the Supreme Court has held the plan must follow its documents, and federal rules say a will cannot name a TSP beneficiary. A will can change a FEGLI beneficiary only if it is witnessed by two people and received by your agency or OPM before your death.
What happens if there is no beneficiary on file?
The account follows the plan's or contract's default. For many plans that is your spouse, and then your estate. The TSP and FEGLI use orders of precedence set by federal law. If the money goes to your estate, it usually passes through probate.
Can I name someone other than my spouse on my 401(k)?
In most private-employer plans, only with your spouse's written consent, witnessed by a notary or plan representative. Government plans, most church plans and the TSP follow their own rules.
Does divorce remove my ex-spouse as beneficiary?
It depends on the account and the state. Many states revoke a former spouse's designation automatically, but those laws do not apply to ERISA plans or FEGLI. Always file new forms after a divorce.
What is the difference between per stirpes and per capita?
Per stirpes passes a deceased beneficiary's share to their descendants. Per capita splits it among the surviving beneficiaries in the same group.
Can I name a minor as beneficiary?
Yes, but a court may have to appoint a guardian to receive the money. Naming a UTMA custodian or a trust for the child avoids that.
How long does a child have to empty an inherited IRA?
An adult child who is not disabled or chronically ill must empty it by December 31 of the 10th year after the year of death. If the parent had already reached the required beginning date, the child must also take yearly distributions in years 1 through 9. A minor child of the owner can take life-expectancy payments until age 21, and then has 10 years.
How much FDIC coverage does a POD account get?
$250,000 per eligible beneficiary, counting up to 5 beneficiaries, so a maximum of $1,250,000 per owner per bank across all of that owner's trust accounts there.
How often should I review my beneficiaries?
After every marriage, divorce, birth, adoption, death, job change or rollover, and otherwise every few years. It takes minutes and prevents the most common estate mistakes.
This article is for general information and is not legal, tax or financial advice. Rules are from ERISA and the Internal Revenue Code (29 U.S.C. 1003, 1055; 26 U.S.C. 223, 401, 417, 4974), 5 U.S.C. 8705, 5 CFR part 1651, 12 CFR 330.10, IRS Publication 590-B (2025) and Publication 969, the final RMD regulations (T.D. 10001, 89 FR 58886), the Federal Retirement Thrift Investment Board's 2022 recordkeeping notice, OPM Standard Form 2823, FDIC deposit insurance pages, and the Supreme Court decisions in Egelhoff v. Egelhoff, Kennedy v. Plan Administrator for DuPont, Hillman v. Maretta and Sveen v. Melin, all read on 2026-10-29. Examples are hypothetical. State laws on divorce, community property, UTMA and transfer-on-death registration differ; ask an estate attorney about your own accounts.
