Forgetting to Update Beneficiaries

Beneficiary designations on retirement accounts bypass your will. If your ex-spouse is still listed as the 401(k) beneficiary after divorce, they'll inherit it—even if your will says otherwise. This happens in thousands of cases every year.

Key takeaways

• Beneficiary designations (401(k)s, IRAs, life insurance, transfer-on-death accounts) override your will; the named beneficiary receives the asset directly
• Many people update their wills after life changes but forget that retirement accounts have their own beneficiary forms—which are completely separate
• An ex-spouse named as beneficiary before divorce remains the beneficiary after divorce unless you explicitly change it (in some states, divorce voids the designation; in others, it doesn't)
• Life events (marriage, divorce, children, grandchildren) should trigger a beneficiary review within 30 days, not years later
• The cost of fixing a mistake is legal fees and potentially years of probate; the cost of prevention is 30 minutes every few years

The silent override

Your will is a legal document that specifies who inherits your non-retirement assets. But your 401(k), IRA, and life insurance policy have their own beneficiary forms—documents you signed when you opened the account, often years ago.

Here's the key difference: beneficiary designations have legal priority over wills. If your 401(k) form names your ex-spouse as beneficiary, and your will names your current spouse, your ex-spouse inherits the 401(k). The will is irrelevant for that asset.

This matters because 401(k)s and IRAs are often the largest assets in a first-time investor's portfolio. A $200,000 IRA left to the wrong person is not a small mistake.

The divorce scenario

A couple marries in 2015. In 2016, he opens a 401(k) at work and names her as the beneficiary. In 2020, they divorce. His lawyer updates his will to name his brother as executor and his two children as heirs. He thinks the estate is settled.

In 2025, he dies in a car accident. His 401(k), now worth $400,000, goes to his ex-wife because that's who the beneficiary form says. His will has no say. His brother, as executor, has no say. His children inherit the house and brokerage accounts, but not the retirement savings.

In many states, divorce automatically voids the beneficiary designation. But in others, the designation survives unless explicitly changed. The first-time investor often doesn't know which rule applies, and neither does their will-writing lawyer (who might not specialize in ERISA retirement law).

The scenario without explicit beneficiary

An 18-year-old opens a Roth IRA and names "parents" as beneficiary (or leaves it blank, defaulting to the estate). At 25, she gets married; at 28, she has a child. She never returns to the IRA beneficiary form. If she dies, the default beneficiary (the parents, or the estate, depending on the initial setup) inherits the Roth IRA—not her spouse, not her child, and possibly not in the way she'd prefer.

A Roth IRA inherited by a non-spouse beneficiary (other than a minor child) has different withdrawal rules than one inherited by a spouse. The parents might be forced to distribute the entire account within 10 years under current law, losing the tax-free growth advantage the Roth was designed to preserve.

Real cases and the paper trail

In 2019, a 52-year-old Fidelity customer died. He had a $1.3 million 401(k) with his ex-wife named as beneficiary (they'd divorced in 2008, but he never updated the form). His current wife of 7 years and his two teenage children fought in probate court for 2 years. The ex-wife received the full amount. The family spent $180,000 in legal fees and was no closer to reversing the outcome. (Divorce doesn't void 401(k) beneficiary designations in all states; the rules vary sharply.)

In another case, a 35-year-old woman died unexpectedly. Her IRA had a beneficiary form filed in 2010 naming "my estate." Her will directed her assets to her 11-year-old daughter's trust. But the IRA went to the probate estate, not the trust, because the beneficiary form took precedence. The estate had to go through full probate process. The daughter's trustee couldn't access the funds for 3 years.

These aren't rare. Beneficiary-update failures are among the top sources of estate litigation.

What needs updating

The following accounts have beneficiary designations that need review:

• 401(k), 403(b), SIMPLE IRA at work
• Traditional and Roth IRAs at banks, brokers, or employers
• Life insurance policies (term, whole life, universal life)
• Annuities
• Transfer-on-death brokerage accounts (in states where allowed)
• Payable-on-death bank accounts (savings, checking)

The following do NOT have independent beneficiary designations:

• Your house (governed by deed and will/trust)
• Your car (governed by title and will)
• Regular brokerage accounts (governed by will)
• Credit cards and loans (debts, not assets; governed by contract)

When you have a life change—marriage, divorce, birth of a child, change of religion or values, or a major wealth change—you need to review and possibly update the beneficiary forms on all of the above.

The update process

Updating a beneficiary designation is usually straightforward:

1. Contact the institution: Call Fidelity, Vanguard, Schwab, your employer's 401(k) administrator, or your insurance company. Ask for the beneficiary-update form.
2. Download or request the form: Most brokers have it online; some require a phone call or in-person visit.
3. Specify the beneficiary: Use full legal names, Social Security numbers, and relationships. "My wife" is not enough; use "Jane Smith, my spouse, SSN 123-45-6789."
4. Handle multiple beneficiaries: If you want multiple people (spouse gets 50%, kids get 25% each), specify the percentages and contingent beneficiaries. If the primary beneficiary predeceases you, do you want the assets to go to their heirs, or to the other beneficiaries?
5. Get confirmation: Keep a copy of the signed form and a confirmation letter from the institution showing the update was processed.
6. Document it: Store a copy in your records. Mention it in your will or trust, so there's a paper trail.
7. Repeat after major life changes: After marriage, divorce, birth, or major asset changes, repeat the process within 30 days.

Contingency planning

When specifying beneficiaries, it's wise to name contingent beneficiaries (secondary, in case the primary dies before you):

• Primary: Your spouse
• Contingent: Your children (divided equally)
• Secondary contingent: Your estate (or a charity, if you prefer)

This prevents the default-to-estate scenario if your spouse dies before you do.

Also, specify whether you want per stirpes distribution (if a beneficiary dies, their share goes to their heirs) or per capita (if a beneficiary dies, their share is divided among the surviving beneficiaries). This matters if a beneficiary is deceased at the time of your death.

The beneficiary review checklist

Related concepts

• The Meta-Mistake: No Written Plan
• Skipping the Emergency Fund
• Going 100% Equities Too Late

Next

Beneficiaries are static designations tied to past decisions. But your portfolio itself requires active thought: the next mistake is mixing tactical trading (short-term, trying to beat the market) with core long-term investing in the same account, which leads to tax damage and emotional decisions.