How Current is Your Beneficiary Form?

By Beverly DeVeny, IRA Techical Expert
Follow Me on Twitter: @BevIRAEdSlott

Think about this. You opened your IRA account 20 years ago and named your spouse as the beneficiary of your IRA. Life has been good for the last 20 years, and you are still married to that same spouse and that same financial institution is still on the corner. But should you still have the same beneficiary form? A lot has changed in 20 years. You’ve updated your wardrobe and car. And you probably need to update your beneficiary form.

The tax code and retirement distribution rules have changed over the last 20 years as well. In 2002, they were “simplified.” (They actually are simpler now even though they are still complicated!) The language in that old beneficiary form could create problems at your death.

Why hasn’t your IRA custodian done something about this? The custodian will update your IRA agreement from time to time. All that is required is that they mail a copy to each of their clients with a letter telling them to keep the new agreement in their files. If they wanted clients to update their beneficiary forms, they would have to mail them out to all clients with a letter of instructions, each client would have to complete the form and mail it back, and then the custodian would have to process all those new beneficiary forms. It is not cost effective for them to give you that type of customer service.

Even if you have not had your IRA for 20 years or the same spouse for 20 years, it is still a good idea to check your beneficiary forms. Your IRA custodian may have changed names or locations. Sometimes institutions make the decision not to move your beneficiary form to the new location or company. They shred it for you. Your spouse or other beneficiaries may have changed or even died. It’s never a good idea to name dead people as the beneficiary of your IRA. They don’t have a life expectancy so they cannot stretch out distributions.

While you are checking up on your beneficiaries, make sure that you also have a contingent beneficiary named on your beneficiary form. That gives you a back-up plan in case circumstances change and you don’t update your beneficiary form to reflect that. If a primary beneficiary predeceased you, then the contingent beneficiary will automatically move up and inherit the IRA. It also gives the primary beneficiary the chance to disclaim the IRA and pass it directly from you to the contingent beneficiary. A plan B is generally a good thing.

So before the holidays are upon us and you get really, really busy, check your beneficiary forms and update them if necessary.