Beneficiaries: A Blueprint

It’s never too early to start estate planning. It may seem daunting, especially when considering who will receive your assets when you die. That’s why it’s important to understand the role of beneficiaries and how to designate them for all your pertinent assets and accounts.

Designating beneficiaries has complex tax and estate consequences and requires careful coordination with your entire estate plan. This is a general overview of beneficiary designations on investment accounts and is not legal, tax or investment advice. Work with the custodian of your accounts to designate or review beneficiaries

Who gets my stuff when I die?

Your estate plan determines that! But first off, it’s important to know what exactly a beneficiary is.

A beneficiary is an individual or entity/organization that you designate to receive your belongings or assets in the event of your death. It’s important to have one as it ensures your assets are distributed according to your wishes when you pass away. (ref. 1)

A beneficiary can be designated on retirement, brokerage, bank and other financial accounts. If you designate beneficiaries, that designation is unique to the account, avoids probate (which we will discuss in a later post) and supersedes your Will. 

It’s important to note that there are two types of beneficiaries when considering designations: primary and contingent.

What’s the difference between a primary and contingent beneficiary?

Generally speaking, a primary beneficiary is the first individual(s) to receive your account benefit upon your death. A contingent beneficiary is an individual or entity whom you choose to inherit your accounts/assets in the event the primary dies or elects not to inherit the assets (as shown below). (ref. 2)

What happens if I don’t choose a beneficiary?

If you die without having named a beneficiary on an IRA, your custodial agreement will determine who inherits the account. Typically, these agreements will designate your surviving spouse as your beneficiary if you are married at the time of death. If you are not married, your estate may automatically become a beneficiary of the IRA. For non-IRA accounts, whatever your Will says will determine how your assets are distributed. (ref. 3)

 

What about their children?

Generally, if you have multiple beneficiaries, Ann, Bob and Charles, and Charles dies before you, his share will pass to Ann and Bob (as illustrated in Fig. 1). Distribution options such as Per Stirpes and Per Capita will pass your accounts to your beneficiaries’ children (as in Fig. 2).

Per Stirpes or Per Capita can be defined in different ways depending on the custodial agreement or law, so take care to understand the implications of each designation. Discuss other arrangements with your custodian.

What about my IRAs?

IRAs and other tax qualified accounts are generally not subject to the terms of your Will. If you do not designate a beneficiary, the custodian, state or federal law may determine who inherits your account. It is important to designate beneficiaries to control who gets the account. Remember, inheriting an IRA may have significant tax consequences for your beneficiaries.

Designating beneficiaries has complex tax and estate consequences and requires careful coordination with your entire estate plan. This is a general overview of beneficiary designations on investment accounts and is not legal, tax or investment advice. Work with the custodian of your accounts to designate or review beneficiaries. 

 

Trust issues?

Establishing a Trust is another way to ensure that your assets are distributed the way that you wish. It is generally possible to have much more detailed instructions and name a trustee to exercise control over your assets after your death.  In particular, trusts are helpful for complicated assets (such as estate tax issues or property in multiple states) or complicated beneficiaries (such as minors, multiple families or beneficiaries who cannot handle their own finances).

In the case of an IRA or other tax qualified accounts, living individuals typically have the most flexible options. Trusts may be at a disadvantage when it comes to distribution options, taxes and general complexity. Take extra care when considering naming a Trust as beneficiary of your IRA.

Where can I read more? 

www.trustandwill.com

https://www.schwab.com/resource/titling-beneficiary

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[1] Julia Kagan, “What Is a Beneficiary? Role, Types, and Examples,” Investpedia, July 14, 2025, https://www.investopedia.com/terms/b/beneficiary.asp.

[2] “What is a contingent beneficiary? Making the right beneficiary choice matters,” Fidelity Investments, accessed December 1, 2025, https://www.fidelity.com/learning-center/smart-money/what-is-a-contingent-beneficiary.

[3] “Designating a Beneficiary for Your IRA,” Benjamin F. Edwards, Accessed November 17, 2025,https://www.benjaminfedwards.com/wp-content/uploads/2024/09/designating-a-beneficiary.pdf.

Planning on RMD income

It’s Required Minimum Distribution season and there are some important elements to understand before calculating and withdrawing funds from your IRA accounts. 

Throughout your career, you deferred taxes by putting money into your IRA or 401(k) accounts and now the time has come to pay the taxes. Your broker or financial advisor can help you calculate and withdraw this distribution. 

Your first RMD is generally when you turn 73. (If you were born on or after January 1, 1960, your first RMD is at age 75.) Figure I illustrates the RMD age for account owners.  

 

The RMD is the amount that you must withdraw from your tax deferred retirement accounts. RMDs are generally determined by dividing the account value as of December 31st of the previous year by the life expectancy distribution period of the calculation year as illustrated in Figure II. 

 

It’s important to remember that your first RMD is due April 1st of the year after you reach RMD age. But be careful – if you defer your first withdrawal, you will have to take two RMDs in that year. Only do this with careful thought and planning with your advisor. 

*Note: Your RMD calculation will be a little different if your sole beneficiary is a spouse who is more than 10 years younger than you. If this is the case, then you are required to use Table II (Joint Life and Last Survivor Expectancy) in Appendix B as shown in the IRS Publication 590-B (2024) (“Distributions from Individual Retirement Arrangements (IRAs)”). For the most part, this will result in a smaller RMD calculation than you would otherwise have. 

You calculate your RMD by dividing your account balance at the end of the previous year by the joint life and last survivor expectancy from Table II. 

For example: You have a traditional IRA with an account balance of $100,000 at the end of 2024. Your spouse, who is the sole beneficiary of your IRA, is 11 years younger than you. You turn 75 in 2025, and your spouse turns 64. You would use Table II. Your joint life and last survivor expectancy is 25.3, making your RMD for 2025 $3,953 ($100,000 ÷ 25.3). Source

Taking More than the Minimum 

You may take more than the minimum requirement. Using these accounts for income or covering large expenses is an important part of many people’s financial plan. You may be concerned about what the IRS might say, but do not worry. While the IRS requires a minimum withdrawal, they cannot tell you what your budget needs are or what your portfolio can sustain. 

What You Can Do with this Money 

Once you withdraw the money from the account, it’s just your money! You can do whatever you like. Spend it, save it, give it away! If you want to keep the money invested, move the cash to a taxable brokerage account (like an individual or joint account) and reinvest there. It can’t stay in the IRA. 

 

Taking Less 

If you decide not to take the minimum or more than the minimum, it’s most important to avoid taking funds below the minimum requirement. Leaving your RMD in the account may result in an up to 25% penalty tax on the amount not distributed. There are several ways to satisfy the RMD but simply moving it into another IRA or rolling one deferred account into another does not satisfy the RMD.  

While you can still convert your IRA to a Roth IRA, this does not satisfy the RMD either. If you are still working, you may be eligible to contribute to your IRA – this is allowed, but you must still take your RMD (as will be explored later). 

Taxation 

You’ve used this account to reduce your taxes in the past, and the IRS wants its cut. Withdrawals are taxable income that can push you into a higher bracket, raise Medicare premiums, and affect Social Security taxation. But if you don’t need the money, and want to send it to charity instead, you may be able to make significant savings with Qualified Charitable Distributions (QCD).  

Charitable Giving 

With the current standard deduction, fewer than 10% of tax returns are able to deduct charitable gifts. Qualified Charitable Distributions (QCDs) satisfy your RMD while excluding the gift from your adjusted gross income. If you do not itemize your deductions, you may be able to lower your taxes and still take advantage of the higher standard deduction. The money must go directly from the IRA to charity - work with your custodian or advisor to get this right. Figure III illustrates. 

 

Withdrawals from a pre-tax IRA, including your RMD, generally count towards your adjusted gross income (AGI). You are taxed on your AGI minus your deductions. If you do not itemize your deductions, you can reduce your AGI with a Qualified Charitable Distribution and still use the generous standard deduction. This reduces your taxable income and your total taxes owed. 

Multiple retirement accounts 

If you have multiple IRAs, you may be able to withdraw the total RMD from a single IRA. You must calculate the RMD for each eligible account. However, for 401(k)s and 457(b)s, you must take the RMD from each account. 

You may want to consolidate IRAs and other retirement accounts BEFORE the year you must begin taking RMDs to simplify the process. 

Inherited IRAs  

Beneficiary IRAs have more complex tax rules. If you inherit from a spouse, you can treat the account as your own. If you inherit from anyone else, in most cases, you must withdraw the account within 10 years and take RMDs each year until then.  It is important to both follow the rules and honor the memory of the person who left you an IRA. 

Thinking about distributions and taxes for your heirs is a big part of estate planning. Make sure that you review your beneficiaries as part of this process. 

Avoid RMDs with Roth Conversions 

Plan ahead to avoid RMDs with Roth conversions. Your Roth IRA is not subject to RMDs. Distributions to you or your beneficiaries are not taxable. By converting your pre-tax IRA to a Roth IRA, you will not have to take the RMD out. The conversion does count as taxable income, but this could potentially generate tax savings in the future. This requires careful planning as shown in Figure IV. 

You must satisfy your RMD before you can convert any additional funds. If you don’t, the funds can’t be converted to a Roth account where it would be tax free. This can be a big benefit to your beneficiaries who may face steep distributions in some of their highest earning years.