Guide to Naming Beneficiaries of Insurance Policies and Retirement Plans

When you are naming beneficiaries for your insurance policies and retirement plans, there are a number of factors that you are going to need to consider. Here are a few things to think about when you are naming beneficiaries.

Personal Factors

The first things to look at are the personal factors associated with the beneficiary. You want to spend some time and thought considering who the best beneficiary of your accounts would be. You will want to look at the age of the individual when making this decision. For example, you may not want to name a beneficiary that is only a small child. She would not be able to inherit a large lump sum of money anyway. You will also want to look at the ability of that person to handle a large amount of money. If you want someone to get some of the money, but you are afraid of how he will handle it, you might consider using a trust arrangement instead. You will also want to consider the financial situation of your potential beneficiaries. If one of your children is wealthy, while the other one is broke, you might want to help out one more than the other.

Life Insurance

If you have a life insurance policy, you are going to have to name someone as your beneficiary. When you die, this beneficiary is going to receive the full amount of the face value of the policy. If you have a $1 million life insurance policy, that person is going to get $1 million. You will need to make sure that you designate a specific beneficiary when you are setting up your life insurance policy. You can also change beneficiaries on your life insurance policy whenever you want.

Contingent Beneficiaries

With your life insurance, you will also want to make sure that you name a contingent beneficiary. A contingent beneficiary would receive the payout if anything were to happen to the primary beneficiary first. This is also known as a secondary beneficiary. For example, if you are married, you might have your spouse as the primary beneficiary and a child as a contingent beneficiary. If you and your spouse die in a car wreck, the money would go to your child. 


If you have an IRA or a Roth IRA, you will want to make sure that you appoint a beneficiary for this account. If the beneficiary is your spouse, he or she will be able to roll the funds from the IRA into his or her own IRA. If the beneficiary is a non-spouse, he or she will be able to start withdrawing the money from your IRA immediately.

Tax Considerations

Make sure that your beneficiaries understand the tax considerations of taking money out of your IRA. If you have a traditional IRA, they will have to pay income taxes on the money when they take it out. If you are dealing with a Roth IRA, you will be able to leave them tax-free money.

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