Estate planning for retirement accounts starts with a document most people forget they signed: the beneficiary designation form on file with your IRA custodian, 401(k) plan administrator, or HSA trustee. That form, not your will, decides who inherits the account. Getting it right, and keeping it current, controls whether your IRA, 401(k), or HSA passes cleanly to the people you intend, and whether they keep most of it after taxes.
The Beneficiary Form Overrides Your Will
Retirement accounts skip probate. They pass directly to whoever is named on the beneficiary form, and that form is a binding contract between you and the financial institution holding the money. Your will controls only the assets that flow through probate, like a house titled in your name alone or a bank account without a payable-on-death designation.
The U.S. Supreme Court reinforced this in 2009 when it held that a 401(k) plan administrator was legally required to pay benefits to the named beneficiary on file, even though a divorce decree had supposedly waived that person’s rights. The Court held that ERISA requires plan administrators to follow the plan documents, and that this straightforward rule avoids messy inquiries into what the account owner might have intended.1Justia Law. Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, 555 U.S. 285 If the form says your ex-spouse gets the 401(k), your ex-spouse gets the 401(k), regardless of your will, your divorce settlement, or what your family says about it.
A will revision without a matching beneficiary form update is one of the most common estate planning failures. Divorce, remarriage, the birth of a child, or the death of a named beneficiary each warrant an immediate update to every retirement account you own.
Spousal Consent for 401(k) Plans
If you’re married and want to name someone other than your spouse as the primary beneficiary of your 401(k), federal law requires your spouse to sign a written waiver. The signature must be witnessed by either a notary public or a plan representative.2U.S. Department of Labor. FAQs About Retirement Plans and ERISA Without that witnessed waiver, the plan administrator must pay the surviving spouse, no matter what the designation form says.3Internal Revenue Service. Fixing Common Plan Mistakes – Failure to Obtain Spousal Consent
This rule applies to most employer-sponsored plans, including 401(k)s, 403(b)s, and pensions. IRAs are not subject to the same federal spousal consent requirement, though some community property states impose their own rules on IRA beneficiary designations. If you live in a community property state and want to name a non-spouse beneficiary on an IRA, check your state’s specific requirements.
Filling Out the Designation Correctly
Most custodians ask for each beneficiary’s full legal name, Social Security number, date of birth, and current address. You’ll designate primary beneficiaries, who receive the account first, and contingent beneficiaries, who inherit only if every primary beneficiary has already died. Allocations are set as percentages of the total balance and must add up to exactly 100% for each tier.
Pay attention to how the form handles a beneficiary who dies before you. If you name your three children as equal primary beneficiaries and one of them dies first, a per stirpes designation sends that child’s share to their own children. Without it, depending on the plan’s default rules, the deceased child’s share may be redistributed among your two surviving children, cutting your grandchildren out entirely. Not every custodian offers per stirpes on the form, and some default to per capita distribution. Read the form carefully and ask the plan administrator if the option isn’t visible.
Designation forms are available through your employer’s HR portal for workplace plans or through your online account for IRAs and HSAs. After submitting a change, verify the update on your next statement or by logging back in after a few business days. If you submit a paper form, send it by certified mail and keep a stamped copy of the signed form in your estate file. Proof of your intent matters if a dispute arises later.
What Happens With No Beneficiary Named
If you die without a valid beneficiary designation, or if every named beneficiary has predeceased you, the retirement account typically defaults to your estate. This is one of the worst outcomes for your heirs. An estate is not an individual, so the more favorable distribution rules for designated beneficiaries don’t apply. If you died before your required beginning date for minimum distributions, the entire account must be withdrawn within five years. If you died after that date, distributions continue based on your remaining life expectancy, almost always shorter than what a living beneficiary would receive.4Internal Revenue Service. Retirement Topics – Beneficiary
An account flowing through your estate also goes through probate, erasing the speed advantage that makes retirement accounts attractive to heirs. Probate means court fees, potential delays, and a public record of the transfer.
The 10-Year Rule for Non-Spouse Heirs
The SECURE Act of 2019 reshaped how inherited retirement accounts work. Before 2020, a non-spouse beneficiary could spread withdrawals from an inherited IRA or 401(k) over their own life expectancy, sometimes stretching distributions across decades. That option is gone for most heirs. Under current law, the vast majority of non-spouse beneficiaries must withdraw the entire inherited balance by December 31 of the tenth year after the account owner’s death.5Office of the Law Revision Counsel. 26 USC 401 – Qualified Pension, Profit-Sharing, and Stock Bonus Plans
For a traditional IRA or pre-tax 401(k), every dollar withdrawn counts as ordinary income in the year it comes out. Compressing decades of distributions into a 10-year window means heirs can face substantially higher tax bills than they would have under the old rules. A $500,000 inherited IRA withdrawn in roughly equal installments over 10 years adds $50,000 to the beneficiary’s taxable income each year. If that heir already earns a solid salary, those distributions may push them into a higher tax bracket.
Who Still Gets to Stretch Distributions
A narrow group called eligible designated beneficiaries can still stretch distributions over their life expectancy instead of the 10-year window. This group includes:4Internal Revenue Service. Retirement Topics – Beneficiary
- Surviving spouses, who can also roll the inherited account into their own IRA and reset the distribution clock entirely.
- Minor children of the account owner. Only the owner’s own children qualify, not grandchildren or other minors, and this exception expires when the child reaches 21.
- Disabled individuals who meet the IRS definition under the tax code.
- Chronically ill individuals, as certified by a licensed healthcare provider.
- Individuals not more than 10 years younger than the account owner, such as a close-in-age sibling.
These beneficiaries calculate annual withdrawals using IRS life expectancy tables in Appendix B of Publication 590-B.6Internal Revenue Service. Publication 590-B – Distributions From Individual Retirement Arrangements When an eligible designated beneficiary later dies, or in the case of a minor child reaches age 21, the 10-year clock starts for whoever inherits next.
A minor child of the account owner takes life expectancy distributions until turning 21, at which point the 10-year rule takes over and the child must empty the account by 31. Because minors cannot manage financial accounts, someone needs legal authority to handle distributions on their behalf. A custodial account under your state’s Uniform Transfers to Minors Act is one option; naming a trust as beneficiary is another. A custodian manages the account until the child reaches the age of majority under state law, at which point the remaining assets transfer to the child outright. A trust offers more flexibility but adds complexity and cost.
Annual RMDs Inside the 10-Year Window
This is where the rules get confusing, and where heirs make expensive mistakes. Whether a non-spouse beneficiary must take annual withdrawals during the 10-year period depends on when the original account owner died relative to their required beginning date for minimum distributions.
If the owner died before that date (currently age 73), the beneficiary has full flexibility during the 10-year window. They can take nothing for nine years and withdraw the entire balance in year 10, or spread it out however they choose. The only hard deadline is emptying the account by December 31 of the tenth year.5Office of the Law Revision Counsel. 26 USC 401 – Qualified Pension, Profit-Sharing, and Stock Bonus Plans
If the owner died after their required beginning date, the IRS requires annual minimum distributions in each of the 10 years, with the full remaining balance due by the end of year 10.7Internal Revenue Service. Notice 2024-35 – Certain Required Minimum Distributions Annual amounts are calculated using the beneficiary’s life expectancy. Missing a distribution triggers an excise tax of 25% on the amount that should have come out. That penalty drops to 10% if you correct the shortfall within two years.8Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
The required beginning date is age 73 and is scheduled to move to 75 in 2033 under the SECURE 2.0 Act.8Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs Whether the original owner had already started taking distributions is something beneficiaries need to verify immediately after inheriting, because it determines the entire withdrawal strategy.
Inherited Roth IRAs
Inherited Roth IRAs follow the same distribution timelines as traditional accounts. Non-spouse beneficiaries still face the 10-year rule, and eligible designated beneficiaries can still stretch over life expectancy. The critical difference is taxation. Withdrawals of contributions from an inherited Roth IRA are always tax-free. Earnings are also tax-free, provided the original owner held the Roth account for at least five years before death.4Internal Revenue Service. Retirement Topics – Beneficiary
If the account is less than five years old at the owner’s death, earnings withdrawn during the distribution period are taxable as ordinary income, though contributions still come out tax-free. Most Roth IRAs large enough to matter for estate planning have been open well beyond five years, making this a non-issue for the majority of heirs.
Tax-free treatment makes Roth IRAs the most heir-friendly retirement account. Even under the 10-year timeline, a beneficiary can let the balance grow for nearly a decade, then withdraw it all without owing a cent in income tax. That’s a fundamentally different planning calculation than a traditional IRA where every dollar withdrawn is taxable income.
HSAs at Death
Health savings accounts follow their own rules, and the tax treatment at death depends entirely on who inherits. If your spouse inherits your HSA, the account simply becomes theirs. They continue using it for qualified medical expenses on a tax-free basis, exactly as you did.9Office of the Law Revision Counsel. 26 USC 223 – Health Savings Accounts
If anyone other than your spouse inherits, the account stops being an HSA on the date of your death, and the full fair market value becomes taxable to the beneficiary as ordinary income in that year.10Internal Revenue Service. Publication 969 – Health Savings Accounts and Other Tax-Favored Health Plans A non-spouse beneficiary can reduce that taxable amount by paying qualified medical expenses the deceased incurred before death, as long as those expenses are paid within one year.9Office of the Law Revision Counsel. 26 USC 223 – Health Savings Accounts If the estate is the beneficiary rather than a named person, the account value is reported on the deceased person’s final income tax return.
If you’re married, your spouse should almost always be named as HSA beneficiary. If you’re unmarried, an HSA is one of the worst accounts to leave to heirs from a tax standpoint, because the entire balance hits them as taxable income in a single year. Spending down an HSA during your lifetime on medical expenses may be more tax-efficient than leaving a large balance behind for a non-spouse.
Naming a Trust as Beneficiary
Some account owners want a trust rather than an individual named on the form. Common reasons include controlling the pace of distributions to a spendthrift heir, protecting assets from a beneficiary’s creditors, or providing for a special needs beneficiary without jeopardizing government benefits. Naming a trust adds complexity, and the IRS imposes specific requirements before it will look through the trust and treat the underlying beneficiaries as if they were named directly.
To qualify as a see-through trust, the trust must be valid under state law, become irrevocable at the account owner’s death, have identifiable beneficiaries, and provide a copy of the trust document to the plan administrator.11Internal Revenue Service. Private Letter Ruling 201320021 If any requirement is missing, the IRS treats the trust as a non-individual beneficiary, which may push the account into the compressed five-year distribution rule instead of the 10-year rule or life expectancy distributions.
Conduit vs. Accumulation Trusts
A conduit trust requires the trustee to pass every retirement account distribution directly to the trust beneficiary in the year it’s received. The money doesn’t stay in the trust, so it gets taxed at the beneficiary’s individual rate. This works well when the beneficiary is financially responsible and doesn’t need creditor protection. The trustee has no authority to hold funds back, so the asset-protection benefit trusts normally provide is largely lost.
An accumulation trust lets the trustee decide whether to distribute retirement withdrawals to the beneficiary or retain them inside the trust. That gives the trustee real control over when and how much the beneficiary receives. The trade-off is taxation. Income retained in a trust hits the top federal income tax rate at a very low threshold compared to individual filers. For 2026, trusts reach the 37% bracket on income above roughly $16,250, while an individual wouldn’t hit that rate until income exceeded $626,350. Accumulation trusts make sense when controlling distributions matters more than minimizing taxes.
Drafting either structure is not a do-it-yourself project. A trust that fails the see-through requirements can cost the beneficiaries far more in accelerated taxes than the trust cost to create.
Naming a Charity as Beneficiary
Retirement accounts are among the most tax-efficient assets to leave to charity. When an individual heir inherits a traditional IRA, every distribution is taxable as ordinary income because the money was never taxed on the way in. Inherited retirement accounts do not receive a stepped-up cost basis at death, unlike stocks or real estate. A charity pays no income tax on the distributions because of its tax-exempt status.
Leaving retirement accounts to charity and appreciated assets like stocks or real estate to your heirs can be more efficient than the reverse. Your heirs get a stepped-up basis on the appreciated assets and can sell at little or no capital gains tax. The charity receives the retirement assets without paying income tax. The estate also receives an unlimited charitable deduction for the value of the retirement account, reducing or eliminating estate tax on that portion of the transfer.12Office of the Law Revision Counsel. 26 USC 2055 – Transfers for Public, Charitable, and Religious Uses
You can name a charity as a partial beneficiary. Allocating 30% of a traditional IRA to a qualified charity and 70% to your children reduces the taxable portion your children inherit while directing a meaningful gift to an organization you support.
Roth Conversions During Your Lifetime
Converting a traditional IRA to a Roth IRA before death shifts the income tax burden from your heirs to you. You pay income tax on the converted amount in the year of conversion, but after that, the account grows tax-free and your heirs inherit tax-free distributions, assuming the five-year holding period is met. This is especially valuable when your current tax bracket is lower than what your heirs are likely to face during the 10-year distribution window.
The math often favors conversion in retirement years when your income dips, perhaps between retirement and the start of Social Security benefits, or before required minimum distributions begin at age 73. Converting in those lower-income years means paying tax at a reduced rate now to eliminate tax entirely for your beneficiaries. You can also spread conversions across multiple years to avoid pushing yourself into a higher bracket in any single year.
Roth conversions also eliminate the annual RMD problem for your heirs. Because Roth IRAs have no required minimum distributions during the owner’s lifetime, the account can compound untouched. Because inherited Roth distributions are tax-free, your beneficiaries keep the full value of every withdrawal. For large traditional IRA balances, a multi-year conversion strategy can save a family hundreds of thousands of dollars in combined taxes.
The 2026 Federal Estate Tax Shift
The Tax Cuts and Jobs Act temporarily doubled the federal estate tax exemption starting in 2018, but those provisions sunset on December 31, 2025. Beginning in 2026, the exemption is projected to drop roughly in half, from approximately $13.99 million per person in 2025 to an estimated $6.5 to $7 million per person, adjusted for inflation. Estates that were comfortably below the threshold under the higher exemption may now face a 40% federal estate tax on the excess.
Retirement accounts are included in your gross estate for estate tax purposes. A large IRA or 401(k) balance pushes your total estate value higher, potentially into taxable territory under the reduced exemption. That creates a double-tax problem: the account is subject to estate tax, and the beneficiary also owes income tax on every distribution. The estate tax paid can be partially offset through an income tax deduction for the beneficiary, but the combined burden is still substantial.
For estates approaching the new threshold, Roth conversions, charitable beneficiary designations, and spousal rollovers become more important. Roughly a dozen states and the District of Columbia also impose their own estate taxes, with exemptions as low as $1 million, so combined federal and state exposure can be significant even for estates well below the federal exemption.
Keeping Your Designations Current
Filing the initial beneficiary form is only the beginning. Designations need review after every major life change and at least every few years as a matter of routine. Divorce is the most dangerous trigger. A former spouse who remains on a beneficiary form will receive the account, whatever your divorce decree or updated will provides. Remarriage, the birth or adoption of a child, or the death of a named beneficiary all require a fresh form.
When verifying your designations, check that the custodian’s records match your intent by reviewing the beneficiary section on your account statement or online portal. Keep a printed or digital copy of every signed designation form in your permanent estate file. If you work with an estate planning attorney, provide them copies so the retirement account designations align with the rest of your plan.
IRAs, 401(k)s, and HSAs often represent the largest single assets in an estate. They’re also the ones most likely to pass to the wrong person because updating a beneficiary form feels less urgent than updating a will. In practice, the form matters more.