Whether it’s for a 401(k) plan, life insurance policy or other important financial document, there are a number of occasions when you will have to select a beneficiary. And there’s a lot to consider before jotting down a name.

Whether it’s for a 401(k) plan, life insurance policy or other important financial document, there are a number of occasions when you will have to select a beneficiary. And there’s a lot to consider before jotting down a name.


Before we go any further, a few words about the importance of naming beneficiaries on retirement plans or insurance policies. If you die, the money from these accounts or policies goes directly to the person named as a beneficiary. If you leave that line empty, the dough will most likely go to your estate, which could end up in costly and time-consuming probate court. Also, your heirs may have to pay estate taxes on that money, taxes that could take a big bite out of your estate’s assets.


And don’t expect a will to take precedence over beneficiary designations – it doesn’t. If you name someone as a beneficiary of your 401(k), that person gets the money, regardless of what your will indicates.


As far as who should be named as beneficiary – currently, federal law mandates naming a spouse (if applicable) as beneficiary of a 401(k) retirement plan, unless he or she signs a waiver relinquishing rights to the inheritance. IRAs are a different story; for those you can name whomever you wish. You can even designate a charitable organization as your beneficiary on individual retirement accounts.


You should also name contingent beneficiaries in addition to a primary beneficiary in case your primary beneficiary dies.


And for those who have remarried, don’t forget children from your first marriage. If you leave everything to your most recent spouse, those kids from that first marriage may be left out in the cold.


Naming a beneficiary is not a “one-time” undertaking. You can periodically review and change designations on insurance policies, employment retirement plans, etc. Make it easy on yourself by keeping copies of all documents where beneficiaries are named in a safe and accessible place. In fact, it’s wise to keep a cover sheet list of your beneficiaries, so you can easily see who is named on each document.


John P. Napolitano is the CEO of U.S. Wealth Management in Braintree, Mass. He may be reached at biznews@ledger.com or 617-786-7073. For online discussion and more information, go to www.makingcentsblog.com.