Beneficiary errors – statistics?

Submitted by Robert Vashko on Mon, 2019-05-06 18:50

I’m in the middle of trying to craft a presentation on the importance of regular beneficiary reviews on retirement accounts, and insurance & annuity contracts, and I am grasping for some statistics demonstrating how many errors and potential problems are floating around out there.

I believe Ed once pinned “90%” as the number of IRA accounts with some sort of beneficiary error. I would like to cite more sources than just Ed, if possible, and preferably with some real numbers vs. anecdotal evidence.

Maybe I am looking for stats that just don’t exist, but does anyone have a line on any resources along this line?

Please and thank you.



Submitted by William Tuttle on Mon, 2019-05-06 19:16

  • The naming of beneficiaries is about optimal withdrawal strategies to minimize taxation. They are not necessarily errors if they accheive the desired effect.
  • A common less than optimal choice is failing to name a beneficiary or naming the estate as beneficiary when there is no spouse. This results in mandatory distributions within five years. This can then be compounded by the executor/administrator taking a lumpsum distribution. However, there may be circumstance where this is intended. I’m not aware of any reporting that would result in public statistics of such cases.
  • Another less than optimal choice is for a spouse beneficiary never assuming or defaulting to ownership. This requires a sucessor beneficiary to use original beneficiary’s RMD divisor schedule. However, there are legitmate reasons for a spouse not to initially accept ownership.
  • Then there are the normally less than optimal choices made by beneficiaries when they cash out the accounts rather than use lifetime distributions or 5-year distributions when available. How do you know this isn’t the best choice for that beneficiary to make. No simple statisitic is going to answer that.
  • Then there are the use of trusts to limit beneficiaries from cashing out the retirement accounts immediately or near-term. However, trusts can be drafted wrong and not meet IRS rules or unnecessarily restrictive.
  • Finally, this not matter soon. There is pending legislation in congress to eliminate lifetime distributions for non-spouse beneficiaries. See other recent threads on here.

Submitted by Robert Vashko on Mon, 2019-05-06 20:11

Thanks.  Yes, I understand the rules, and am aware of the common problem areas.  I am also aware of how RESA would kill stretch IRAs as we know them. As for stats being misleading, I’m not finding much in the way of stats period.  And maybe that’s telling in and of itself – that such stats are difficult at bst to gather with any confidence, and that the arguments for regular beneficiary reviews must be made through anecdotal evidence instead. One stat I have come across for years, but never see any citing authority: “according to the IRS, 90% of beneficiary IRAs are cashed out wihtin a year”.  I see that all the time, but never see where people are getting that stat from. 

Submitted by Alan - IRA critic on Tue, 2019-05-07 16:00

I doubt that 90% of beneficiary designations are in error, even if you limit the count to non spouse beneficiaries and use a broad definition of what constitutes an “error”. However, no question that the actual % would be unnecessarily high.

Submitted by Robert Vashko on Tue, 2019-05-07 16:35

I think the stat was more like “90% of all IRAs have a beneficiary error of some kind” vs. “90% of all bene designations are in error”, if that distinction has any meaning. I was approaching this presentation with case studies of real-life true-story situations where failure to perform regular reviews blew up in the client’s face – or more to the point, in the face of the heirs (since the client was dead).  Stories like “pension pickle”.  But it sure would be nice to have quantitative data to go along with the stories.

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