Click Here to Learn How Morris-Hall PLLC is helping clients during the COVID-19 pandemic.

How to Update Beneficiaries of IRAs and 401(k)s - Naming Your Spouse, a Trust or Others

Are the beneficiary designations of your retirement assets, such as a 401(k) or IRA, current with your estate planning objectives?  If you have a Revocable Living Trust, does it contain the appropriate provisions to be able to name the trust as beneficiary of the retirement asset?

Trust Beware: Not all Revocable Living Trusts are created equally.

If you're considering naming your trust as the beneficiary of your qualified retirement plan(s), then the trust agreement must contain specific language that gives your successor Trustee the flexibility needed to make appropriate tax elections and to allow required minimum distributions (RMDs) to be stretched out over the lifetimes of your beneficiaries.

If the appropriate language isn't in the trust agreement and you designate it as the beneficiary of your IRA, then your beneficiaries will most likely be required to withdraw all of the funds out of the account within 5 years of your death instead of over their own life expectancies. This is especially true and pertinent for those in Arizona and New Mexico.

Your selection of beneficiaries for an IRA or 401(k) is much more complicated then selecting beneficiaries for life insurance because of the built in income tax consequences for IRAs and 401(k)s.

Here are a few scenarios to be aware of when planning your retirement accounts:

Q:  What happens if an IRA is left directly to your beneficiaries outside of a trust?

A:  Your beneficiaries can immediately cash out your IRA and spend the money as they see fit.

Q:  What happens if a beneficiary chooses to immediately cash out and spend the IRA?

A:  Then not only is a stretch out of the required minimum distributions over the beneficiary's remaining life expectancy lost, but 100% of the amount withdrawn will be included in the beneficiary's taxable income in the year of withdrawal.

Q:  What happens if you name your minor child as the direct beneficiary of your IRA?

A:  If this is the case, then a guardianship or conservatorship will need to be established to manage the IRA for the benefit of the child until he or she reaches the age of 18. Then, once the child reaches 18, he or she can withdraw 100% of what's left in the IRA.

Properly planning your retirement accounts into your estate planning is an intricate process, and many attorneys cannot provide you with documents that meet the requirements.  At Morris Hall, we create these documents on a daily basis and can help you best protect your retirement assets for yourself and your beneficiaries.   Please see one of our estate planning attorneys to review whether your beneficiary designations of your IRA and 401(k)s are in line with your estate planning objectives.  Call 888.222.1328 today for a free consultation and/or a free review of your existing estate planning.


Morris Hall has the experienced attorneys you need!
The attorneys at Morris Hall have 100’s of years of combined experience ensuring that families’ assets are protected from probate, unnecessary taxes, creditors, ex-spouses and Medicaid spend-down.  The attorneys also help those in Arizona and New Mexico to apply for and receive Medicaid assistance and Veterans Benefits.  Our Arizona offices are located in Phoenix, Mesa, Scottsdale, Tucson, Prescott, Flagstaff and Arrowhead.  Our New Mexico offices are located in Albuquerque, Las Cruces and Santa Fe.  Contact us today at 888.222.1328 to schedule an appointment!

This blog should be used for informational purposes only.  It does not create an attorney-client relationship with any reader and should not be construed as legal advice.  If you need legal advice, please contact an attorney in your community who can assess the specifics of your situation.


  • Justin says:

    Is it illegal in the state of Arizona to have beneficiaries for an IRA that do not include the spouse? In other words, bypassing the spouse and giving the monies directly to the children?

    Thanks so much.


    • MH says:

      Justin, in order to disinherit a spouse from an IRA you need to have spousal consent. The spouse should sign off on a form consenting to the IRA passing to someone other than them.

Leave a Reply