How to Update Beneficiaries on Retirement Accounts

A beneficiary is the person who inherits an account when the account holder dies. For retirement accounts — IRAs, 401ks, 403bs, pensions, and annuities — the beneficiary form on file with the brokerage is what controls who gets the money. Not your will. Not what you told your family. The form. If the form lists an ex-spouse and you never updated it, the ex-spouse inherits the account, even if your current will leaves everything to your children.

This is one of the most common and most expensive estate-planning mistakes. Court records are full of cases where a parent meant to leave a 401k to their three children but left the original beneficiary form blank. When that happens, the account goes through probate — a court process that takes 6 to 18 months and costs 3 to 7 percent of the account in fees.

Updating beneficiaries is free and takes about 20 minutes per account. Every brokerage and 401k plan has a beneficiary section on its website. You sign in, click Beneficiaries, type in names and Social Security numbers, and click Save. Some plans require a paper form mailed back with a signature. Most accept the online version.

Three rules help make smart choices. First, name a primary and a contingent beneficiary. The primary is the first in line. The contingent inherits only if the primary has died too. Naming both protects the account if you and your primary beneficiary die in the same accident. Second, give percentages, not dollar amounts. Write "50 percent to son, 50 percent to daughter" rather than dollar figures, because the account balance changes over time. Third, list each person by full legal name, date of birth, and Social Security number — not "my children," which is too vague and can cause delays.

Review beneficiaries every year and after any major life event: marriage, divorce, death of a family member, birth of a grandchild. The annual review takes 15 minutes total across all accounts and prevents the most common probate problem.