Deciding on a Retirement Plan Beneficiary (Especially When Unmarried Without Children)

I don’t usually write technical posts, but this one is, more or less, so it needs a big giant disclaimer on the front: I am (OBVIOUSLY) not a financial professional. Please consult someone who actually knows what they’re doing before making any serious moves.

OK, now that we’ve got that out of the way, I’m going to give you some solid advice: whether you’re single or married, make sure your retirement account beneficiaries are properly named and for heaven’s sake, get a will made. [Full disclosure: I’ve done the first, but not the second; it’s on the list for this year.]

Last year, I opened my first-ever retirement account. At the extremely advanced age of 35, I of course immediately started thinking about my imminent death and what would happen to the vast mountain of $$ I’d just sent off to Vanguard. (OK, to the $1000 I’d just sent off to Vanguard.)[*] With an IRA, or, if you’re unmarried, with a 401(k), it’s especially important that you specifically designate beneficiaries, as otherwise the people you want to receive them might well not.[**]

Spouse and children are obvious options for beneficiaries, but I don’t have either of those. My first instinct was to name my parents; that’s what I did with my life insurance policy at my first job out of college, which was the last time I had to designate a beneficiary for anything. But while that was the right choice at the time — if I’d died in my early 20s, they would have needed the money for the funeral and maybe to help pay off my student loans — it’s over a decade later and they are pretty financially secure. Even if I died before them, they don’t really need the money. (If they weren’t in good shape, I would have kept them as the beneficiaries until they died.)

As far as I can tell you can literally name anyone you want on an IRA, down to the postman, as long as you have their name and mailing address and date of birth; if you’re not married, the same is true for a 401(k). I decided that my criteria should be: 1) closeness to me; 2) level of responsibility I feel towards them; 3) likely financial need around the time of my death. This narrowed things down considerably, as I could immediately reject my dentist, my fourth-grade teacher, and Mark Zuckerberg as options.

It turned out to be #2 that was really the deciding factor for me. I don’t feel as responsible for the well-being of my closest friends as I do for that of my immediate family and my godchildren. My parents having been eliminated because of #3, I was really only left with three candidates. So on both my retirement accounts, I named my brother and my two godchildren as equal primary beneficiaries, meaning that if I died tomorrow, they’d each get 1/3 of the account. It would have been possible to name my brother as primary and my godchildren as contingent, meaning that they would only inherit if my brother predeceased me, but I feel responsible for my godchildren and since they will most likely be in midlife, with kids and expenses of their own, when I die, they will probably be able to use the money.

[Edited to add: after publishing this post and reading the comments — thanks guys! — I realized that the situation with naming minor children as beneficiaries is more complicated than I’d understood before. Since neither will be 18 for quite a while, I need to research what the best thing is to do. I may end up naming their mothers, who are my best friends, instead, until they’ve grown up.]

Another important thing about beneficiaries: you have to keep on top of them! If you roll over the account, you need to name them all over again (you can do this on the administrator’s website now, of course, making it much easier than it used to be.) If God forbid one of my beneficiaries dies, I’d need to update the forms. If something major changes in your life — you have a baby, for example — that might be a good reason to disinherit your niece. (Because of this, while I did tell my godchildren’s parents that I’ve named them, I don’t plan to tell the godchildren themselves until many years from now; if I marry, etc, things might change and I don’t want to pull back something they are counting on.)

Assuming no spouse, I have one more question for myself: what happens if another person who fits my criteria enters my life? The most likely case here is a niece and/or nephew, or perhaps another godchild. Splitting the accounts between three people is a little more unwieldy than simply naming my brother, but not that bad. However, things could get absurd quickly. I really do need to write a will and I’ll probably ask the lawyer what he/she thinks, but my instinct is that I’d rearrange things so that two people split one account and two split the other (if they’re roughly equal sized) or my brother’s the sole beneficiary of the smaller account and the three theoretical godchildren split the larger account. In any case, this is clearly a living (hah!) question — as my life unfolds the answer to the question “who’s your beneficiary” may change any number of times.

[*ETA: I told my brother he was going to get just enough inheritance to buy a suitable mourning robe.]

[**401(k) plans have more protection built in for spouses — if you want to name someone else as the beneficiary, your spouse has to sign a form, and if you die without naming a beneficiary it ought to, as I understand it, go to your surviving spouse anyway — but IRAs are different. There’s no automatic beneficiary, and rules vary from administrator to administrator about what to do with an undesignated IRA. You want to sidestep all that by naming the person/people you want. Here’s a little more info on the inheritance rules, though they’re always subject to change with the law.]


44 thoughts on “Deciding on a Retirement Plan Beneficiary (Especially When Unmarried Without Children)

  1. Alicia says:

    Yep, there’s nothing like getting your first bit of money socked away and then thinking “oh gosh, what happens when I die?” – in the least existential way possible. I have D as my primary beneficiary since it makes sense as my spouse. But my contingents are my brother and parents. It’s just a safety net, and really at some point I’ll just keep my brother as a contingent, but for some reason, being faced with supposedly eminent doom, I decided to go a little all out and have all my bases covered. 🙂

    1. thesingledollar says:

      Yeah, it was very a very practical thought! Up until then my worldly goods consisted of some inherited china that’s in my parents’ attic anyway, a couple thousand books nobody particularly wants but me, and my student loans. But when you get cash on hand you want to know where it’s going! What if you and your brother die in a car crash or something — you’d want your parents on there too 🙂

  2. Yes, I’ve been thinking about this as well. I opened my 401k last year and, like you, had to put some thought into naming a beneficiary for my “vast mountain of $$” :-). Luckily, I have sibling that I am close to and who is financially responsible. Unfortunately for the grim reaper, I plan to live forever…and I like that plan better.

    1. thesingledollar says:

      I’d say unfortunately for your sibling! I’m sort of hoping my heir(s) don’t end up with much 🙂 I told my brother he was going to get just enough inheritance to buy a suitable mourning robe.

  3. I have my spouse, but my parents as my backup. I know that they try to help some other family members out, so they’d be able to spread it around. Ok really I think I was just lazy and didn’t think about it too much.

    1. thesingledollar says:

      LOL that sounds like perfectly reasonable thinking! Most likely it’d be your spouse anyway — the primary beneficiary’s the most important. 🙂

  4. Christine says:

    I listed my younger sister and parents are my beneficiaries…for now. Andrew and I aren’t married but I would imagine when we do put on the ball and chain, I would replace my parents with him for reason #3 you listed above. Again, I see this changing when I have kids in the future. So complicated!

    1. thesingledollar says:

      It’s kind of a lot to keep track of, isn’t it?

  5. Cindy says:

    I have my 401(k), Roth IRA, a personal life insurance policy ($100,000) and a work life insurance policy ($85,000) that all needed beneficiaries assigned. I always had my Mom listed, since, being single, I knew my parents would end up footing the funeral expenses if something happened to me. My older sister was usually the contingent beneficiary, since she’s mildly more financially responsible than my other siblings.

    Since Bryan and I have been together for so long now, and are becoming more financially dependent on each other, I’ve started switching things over to list him as the primary, and my Mom as the contingent. He isn’t happy about that, saying he doesn’t want my money, but it really is the most logical choice. Of course, Edward Jones made a mess of the switch! Even though my Mom has been the primary beneficiary for probably close to a decade, they demanded I provide her social security number to switch her to the contingent. I refused, so now it’s just Bryan, with no contingent. I mean, they have her legal name, date of birth, and relationship to me, why do they need her social security number?

    1. thesingledollar says:

      I’m not sure about the SS# issue either — Fidelity (I have my work account with them) demanded SS#s, whereas Vanguard didn’t. I guess I get why it makes sense for them to have the SS# but it’s still annoying.

  6. catherine says:

    Before I was married my younger sister was my beneficiary. I recently had a conversation with a friend though who is not yet married but needed to list beneficiaries for her life insurance etc. She named her mom who immediately said that she wouldn’t want any life insurance money that came from her daughters death (granted) so asked her to make a list of who and what % she’d want the money to go to. So she did, naming her God daughter, and close friends children…asking that her mom saw that money (God forbid) was used t post secondary or something that would ”add value” to their lives.

    1. thesingledollar says:

      Yeah, that’s a nice way to do it too — asking your beneficiary to distribute it appropriately. If my godchildren do end up inheriting at a relatively young age (I hope not!) then I’d hope they’d use the cash to help them move forward in their lives, whether that meant college or buying a first house or whatever. And maybe one nice vacation where they raise a glass to my memory 🙂

  7. I’ve been thinking a lot about this lately. I’m also single with no kids. I’m starting to amass some savings and so I want it to go to my parents and siblings if anything should happen to me. I feel like the concern surrounding wills and powers of attorney is mainly directed to those with spouses and/or children. But, for us singles, we still want to think about where our money might go if anything untoward were to happen. Perhaps I should have put this on my financial goals list for 2015. Wills and powers of attorney are pretty important components of getting your financial house in order!

    1. thesingledollar says:

      Yeah, with us there’s no “default” option so I actually think it’s especially important — I assume my estate would somehow end up defaulting to my parents as next of kin (?) but I don’t really know for sure that that’s the case, and I bet anyway it would take forever and be a real hassle to get straightened out. I really should make an appointment to make a will!

  8. I don’t have a life insurance policy because in my situation I don’t think I really need one, but I do have a living will and my money would go to my step-nephews. I have a brother, but he’s kind of an a-hole and I don’t want him getting anything. 🙂

    1. thesingledollar says:

      Yup, if I didn’t like my brother he wouldn’t get my money either 🙂 I only have life insurance through work; I agree with you that it’s not necessary given my situation. I can’t see ever paying for it myself unless I ended up with custody of a child.

  9. Who to name as a beneficiary seems so obvious or so “I have no idea!” I named my husband and then my little sisters which throws in another whole can of worms because they are minors. My husband named me and then his parents who are both in their 70s and financially set. I’m sure we’ll switch his soon. I have a feeling his will go to my sisters (He’s close with them) or some charity.

    My sisters have no idea that they are beneficiaries to my stuff. Its like my little secret that they’ll get a sweet check of savings when Hubs and I die… and they laugh at my frugalness. Silly girls.

    1. thesingledollar says:

      That sounds like a good plan to me — and yeah, I don’t really want my heirs to know they’re my heirs, at least not at this point 🙂 Good point about the minors — I forgot to mention that part. It’s one reason I need to get the will done too, because my godchildren will be minors for quite a while.

  10. Emma says:

    Oh, I’m so glad you wrote about this! It’s amazing how many people avoid naming beneficiaries or writing wills, and it’s so so so important.

    1. thesingledollar says:

      It really is important! I guess people avoid it because they don’t like thinking about death, and because it takes a little time, but gosh, the mess it makes when you do (inevitably) die and there’s no plan.

  11. I’m with you – single and no kids! I just designated my brother as my beneficiary and my mom as my contingent beneficiary. Really, no one suffers financially if I die so it’s just a windfall.

    1. thesingledollar says:

      Yup, total windfall! In fact I should be careful in dark alleys when my brother’s around…. 🙂

  12. Debt Hater says:

    For now I have just added my parents as the beneficiaries to both my 401k and my Roth IRA. I didn’t really think of it and just seemed like the logical decision at the time. My company offers a really basic life insurance that is probably just enough for a funeral and all that too, and they are the beneficiaries of that.

    I hope to make my girlfriend the beneficiary in the future though!

    1. thesingledollar says:

      When you’re pretty young I think your parents are probably the right choice! Like I said, mine were at first. When I restarted in my mid-30s I realized the situation had changed a lot. I hope things go well enough with your girlfriend that you want to make that switch 🙂

  13. Oof, beneficiary questions. I’ve got the default answer (spouse), but I should really consider changing some of my info in case something happens to both of us. Don’t think my mom’s going to benefit from the money in my accounts.

    1. thesingledollar says:

      Yeah, contingents are important too — I got pretty morbid when I started thinking about this. What if me and my primary beneficiary die in a car crash together?!?!?! Actually, that’s not all that unrealistic, so it’s important to think about backups.

  14. Before I married Mrs Ikonz, I struggled with setting beneficiaries for any of my assets, so simply accepted that my assets will pass directly through my estate.

    Now married with a newborn, time to rethink beneficiaries! Last thing anyone should want is to leave loved ones in doubt that they will be looked after.

    1. thesingledollar says:

      Hey, sorry it took me so long to reply! You got stuck in my spam filter, who knows why 🙂 Definitely with a newborn it’s important to get all this stuff in order! Congratulations and good luck.

  15. FinanceQA says:

    The beneficiaries will change as we go through the seasons and changes of life. It’s part of it. Naming beneficiaries needs careful thinking, especially if you’re single. The first instinct is to prioritize family. For now, I have my parents as beneficiaries. I’m also contemplating on creating a will sooner or later.

    1. thesingledollar says:

      Hey, thanks for the comment! It got stuck in my spam filter so it took me a while to find it 🙂 I agree with you that as we get older our priorities change, and therefore so do our beneficiaries….

  16. I’m pretty sure I designated my parents. Not because they’ll need the money, but because I trust their judgment most in doing something smart with it.

    1. thesingledollar says:

      That’s also a good criterion! Really, I wouldn’t have minded leaving my parents on, because like you, I trust them. But I realized that I actually had a very direct idea about what I wanted to have happen and I could just cut out the prospective middle-people.

  17. Kirsten says:

    Sounds like you were very thoughtful about who would need the money, and I support your decision to tell your brother, but not your godchildren. Makes total sense.

    For us, my hubs and I are each other’s beneficiaries, but on my list for this year is to get a really detailed will set up, so that if we die together, we have a way to control how the funds are disbursed to their guardians, while also setting aside a sizeable sum for college and young adult life expenses.

    1. thesingledollar says:

      That will sounds like a great idea. I’m second in line for both my godchildren; my goddaughter would go to her aunt first, then me, and my godson would go to his grandfather first, then me. I don’t know what financial arrangement their respective parents have made but having a clear plan in place that you almost certainly will never use is always a good idea!

  18. Tarynkay says:

    This is such an important topic. I feel like most people avoid thinking about this stuff. We went through all of this with my nephew a few years ago when my ex-brother in law died intestate. He had actually named a former girlfriend as his beneficiary. They had broken up 20 years earlier. He just never changed it probably bc he was not planning on dying. She had no problem taking the money and there was nothing anyone could do about it.

    Two things: you mentioned that if you had died in your 20s, the money might have been needed to pay off your student loans. Student loans are forgiven in the case of death or permanent disability. Not that this is such great news, if you do die or are permanently disabled, student loans are probably not at the top of your list of worries. But it is good to keep in mind when you are making these kinds of plans.

    The second thing is that if your godchildren are minors, they can’t inherit your retirement money until they turn 18. So if you wanted them to have access to the money before then (not that you are going to die anytime soon, of course) then you would need to either leave it to an adult to distribute or put it into a trust for them.

    And yes, if you die intestate without a spouse or children, your estate would go first to your parents. If they predeceased you, it would go to your brother. If he predeceased you, it would go to his children. You can look up the whole table of consanguinity if you are feeling sufficiently morbid and curious.

    1. thesingledollar says:

      Hi! I recognize you from being awesome in the Frugalwoods’ comments. Welcome 🙂 Also thanks for the phrase “table of consanguinity,” which I’m going to take every opportunity to slip into conversation. // I only just realized doing the research for this post that I needed to get that will done ASAP because of the minor children issue — this stuff is full of pitfalls for the unwary! // What a horrifying story about your ex-brother-in-law and nephew. If that isn’t a compelling reason to get this dealt with, I don’t even know what. Also, note to self, I need to remind my parents that they were going to have *their* wills remade; they last did them in the early 1980s when we were kids, and I know they’ve been meaning to update them but I’m not sure they’ve actually done anything about it. In fact being my parents I’m about 95% sure they haven’t.

  19. Tarynkay says:

    Hey, thanks! I just found your blog and have been really enjoying reading backwards.

    Yeah, my parents just updated their wills. They told me that I no longer have to go live with my Uncle Craig when they die, so that’s good. I am 35, so it has clearly been awhile since they dealt with this stuff.

    1. thesingledollar says:

      LOL. That’s my problem exactly — right now, if my parents died, I’d have to go live with my grandparents (deceased, so that could be an issue) or with our family friends, who luckily I actually like. But they’re in a different city than my job…. And God knows how long it would take to get the house into our (me and my brother’s) names; I’m sure it would happen eventually, but probably not automatically.

  20. This is one of those topics people just don’t talk about. You’ve got me thinking that we have to revisit our will. We do have changes that we want to make – but it’s frankly the last thing I want to devote time or energy to. OK, I promise I will revisit the will some time this year (2015). There.

    1. thesingledollar says:

      I know, it’s both a little depressing and also kind of boring! It really is important though so I’m glad you’re thinking about it again 🙂

  21. Jenna says:

    The first time I had to name a beneficiary it felt really, really weird. I named my parents and my sister until I got married. This seems like a fair thing to do.

    1. thesingledollar says:

      Yeah, it is a little weird, isn’t it? Less so now that I’m older; when I was 22 it felt bizarre.

  22. Mel says:

    I was surprised that you have to make sure your wills and beneficiaries stay lined up or it can present big issues. I’d think the later stated one would take precedence, but nope. My brother is the beneficiary on all of my stuff and always has been, so all my paperwork is consistent, but will be a pain to change if I ever get married or have kids.

    Also, I definitely needed his social security number to make him beneficiary on some of the things.

    1. thesingledollar says:

      Yeah, it seems like one ought to do it! In addition to making a will this year, I’m also going to look into buying one of those kits that tells you everything you need to get set up before you die. I ought to designate a “digital heir” for my passwords, I know, but I’m sure there’s other stuff I’m missing.

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