The conversation most people defer

Retirement planning is largely about you — what you'll have, what you'll spend, how long it will last. At some point, though, there's a third question underneath all of it: what happens to what's left?

This is the part of the conversation that tends to get postponed. It requires imagining your own death, or your partner's, and making decisions about people and assets in circumstances you'd rather not dwell on. So it gets put off, sometimes indefinitely.

The practical problem with putting it off: most of the decisions that determine what happens to your money after you die are set by default. Accounts with no beneficiary named, or the wrong one, pass in ways that may not reflect what you intended — and that can cost your heirs time, taxes, and unnecessary complexity.

This guide isn't a substitute for estate planning with an attorney. It's about the basic mechanics every account holder should understand — the rules that operate in the background whether you're paying attention to them or not.

Beneficiary designations override your will

This is the single most important thing to know about retirement account inheritance: beneficiary designations take legal precedence over your will. If your will says your IRA goes to your son, but your beneficiary designation on file still names an ex-spouse, the ex-spouse inherits the IRA. The will is irrelevant for assets that transfer by beneficiary designation.

This applies to:

  • Traditional IRAs and Roth IRAs
  • 401(k)s, 403(b)s, and other employer-sponsored plans
  • Life insurance policies
  • Annuities
  • Payable-on-death (POD) bank accounts
  • Transfer-on-death (TOD) brokerage accounts

Together, these probably represent the majority of your financial assets. The legal mechanism that controls where they go isn't your estate plan or your will — it's the beneficiary designation form you filled out (or didn't fill out) when you opened each account.

Primary and contingent beneficiaries

Most financial institutions ask you to name both a primary beneficiary (first in line) and a contingent beneficiary (the person who inherits if the primary beneficiary has already died or formally declines the inheritance).

Naming only a primary beneficiary is common. But if the primary beneficiary predeceases you and there's no contingent named, the account may pass through your estate — subject to probate, potentially delayed, and possibly distributed according to a formula rather than your wishes.

The most common arrangement for married couples:

  • Primary beneficiary: spouse
  • Contingent beneficiary: children equally, or per stirpes

Per stirpes — Latin for "by branch" — means each child's share passes to their own children if that child predeceases you. So if you have three children and one dies before you, per stirpes sends that child's share to their children (your grandchildren) rather than splitting it among your two surviving children.

The alternative, per capita, divides equally among only those beneficiaries who are alive at your death. Neither is universally right — but you should know which you're choosing, and most institutions let you specify. The default varies by institution.

How retirement accounts transfer to a surviving spouse

Surviving spouses have more flexibility with inherited retirement accounts than anyone else.

When a spouse inherits a traditional IRA or 401(k), they can either:

  1. Roll it into their own IRA. The inherited account becomes their own, subject to their own rules — their own RMD schedule, their own contribution rules (if still working), and their own beneficiary designations going forward. For most couples close in age, this is the better long-term choice, because it delays forced distributions as long as possible.
  1. Keep it as an inherited IRA. This is less common but has one advantage: inherited IRAs allow penalty-free withdrawals before age 59½. If the surviving spouse is significantly younger than the deceased and needs income before 59½, the inherited IRA option preserves that access.

The spousal rollover is usually straightforward, but it requires action — the account doesn't automatically convert. Many financial institutions require a specific form.

How retirement accounts transfer to non-spouse beneficiaries

Here is where the rules changed significantly under the SECURE Act (2019) and SECURE 2.0 (2022).

For most non-spouse beneficiaries — adult children, siblings, friends, and most others — the entire inherited account must be fully distributed within 10 years of the original owner's death. There are no required annual minimums during those 10 years. But the entire account must be gone by year 10.

This has significant tax consequences. An adult child who inherits a $500,000 traditional IRA must take all distributions within 10 years — and each dollar comes out as ordinary income. Pulling it all at once in year 10 could push them into a much higher bracket for that year. A more deliberate approach — spreading distributions across the 10 years, or front-loading in lower-income years — requires active management.

Inherited Roth IRAs follow the same 10-year distribution rule for non-spouse beneficiaries. The critical difference: distributions from an inherited Roth are still tax-free. An adult child who inherits a Roth IRA must empty it within 10 years, but owes no income tax on any of it. This is why a Roth account is often described as the best asset to leave to heirs in a high tax bracket.

The exceptions: eligible designated beneficiaries

Not everyone faces the 10-year rule. A category called eligible designated beneficiaries can still take distributions based on their own life expectancy, stretching distributions over decades. This group includes:

  • Surviving spouses
  • Minor children of the original account owner (until they reach the age of majority in their state, at which point the 10-year clock starts)
  • Disabled or chronically ill individuals (under specific IRS definitions)
  • Beneficiaries not more than 10 years younger than the deceased

If you're planning a large inheritance for an adult child who is healthy and more than 10 years your junior, the 10-year forced distribution rule applies. That changes the calculus on how much to hold in traditional versus Roth accounts — and whether it makes sense to convert more to Roth before your death.

What you actually need to review

Step 1: List every account and check its beneficiary designation. Log into each financial institution — IRAs, 401(k)s, old employer plans, insurance policies, POD bank accounts — and confirm who is named as primary and contingent beneficiary. Many people haven't looked at these forms since they opened the account years or decades ago. Life has changed since then.

Step 2: Update after life events. Marriage, divorce, a child's birth or death, an estrangement — any of these should trigger a beneficiary review. Institutions aren't notified when your circumstances change; the form on file is what governs.

Step 3: Consider the tax situation of your heirs. If you have a choice between leaving traditional or Roth assets to non-spouse beneficiaries, the math often favors leaving the Roth. Heirs in the 22% or 24% bracket who must distribute a large traditional IRA over 10 years may face meaningfully higher tax costs than heirs receiving the same amount in Roth form. The Roth conversion decisions you're making now affect what your heirs ultimately receive.

Step 4: Talk to an estate planning attorney for complexity. Trusts as beneficiaries, large taxable estates, business interests, special-needs beneficiaries, blended families — these situations require professional legal guidance. Verifying and updating beneficiary designations on standard accounts is something you can and should manage yourself. Structuring a larger estate is different work.

The connection to the rest of your planning

Legacy planning doesn't sit apart from everything else. It connects directly to the tax decisions you make during your lifetime:

  • Large traditional IRA balances → large forced income for heirs under the 10-year rule → potentially significant tax cost for the inheritance.
  • Roth conversions made before death → smaller traditional balances → less forced income for heirs → better after-tax inheritance.
  • Correct beneficiary designations → smooth, probate-free transfer → less administrative burden on heirs during a difficult time.
  • Clear primary and contingent designations → no ambiguity about intent → reduces the risk of family disputes or unintended outcomes.

The decisions you're making about RMDs, Roth conversions, and withdrawal order also shape what you'll eventually leave behind. The planning interlocks in both directions.

Common mistakes

  • Never updating beneficiary designations after major life changes. The designation filed at account opening may name people who have died, remarried, or are no longer who you'd choose. Annual or post-event reviews are worth the few minutes they take.
  • Naming minor children directly as beneficiaries. Minors can't legally receive assets directly in most states. The funds may be held by a court-appointed custodian until the child reaches majority — a process that can be complicated, public, and not under your control. A trust for minor beneficiaries, or naming a trusted adult with clear instructions, is usually a better approach.
  • Assuming the will handles everything. For assets with beneficiary designations, the will is irrelevant. If your estate plan assumes certain assets will pass through the will, double-check that those assets actually will — many won't.
  • Ignoring the Roth advantage for heirs. If a choice exists between leaving traditional or Roth accounts to non-spouse heirs, the Roth is almost always better for them — particularly for heirs in their peak earning years who will face a decade of forced distributions.
  • Losing track of old retirement accounts. Accounts left at former employers over the years are easy to forget. Their beneficiary designations are also easy to forget. A financial account inventory — updated periodically — helps ensure nothing is left to default rules.

This is educational content about retirement planning concepts, not personalized financial advice.

Keep learning →

You've worked through the full decumulation arc — how long money lasts, what the IRS requires of it, what surviving a spouse costs in taxes, and what you leave behind. These guides are starting points for decisions that are worth thinking through carefully, ideally with a qualified professional alongside you.