When you first signed up for a retirement account, you might not have thought about all the details that were presented to you. This is especially true, if you were given retirement account forms along with a large stack of other papers by a human resources person when you started a new job.
One of the items you would have filled out on the forms was an account beneficiary. If you were to pass away, this beneficiary would then receive the assets in the account.
At the time, you might not have thought too deeply about who you designated as that beneficiary. However, it is important that you do think about it when you are making your estate plans, as Morningstar pointed out in "Do's and Don'ts for Beneficiary Designations."
There are actually many things to consider when naming beneficiaries on retirement accounts.
For example, different beneficiaries are treated differently for tax purposes and in how they can use the account.
Another thing to consider is your designated beneficiary, who will receive the account automatically and has no obligation to share with other people, even if you tell them they should. Therefore, if you have three children and name only one of them as a beneficiary, then you might not want to split the rest of your assets evenly between all three children.
The best thing to do is to talk to your estate planning attorney about your beneficiary designations and let the attorney help you determine the best options for them, as part of your overall estate plan.
Reference: Morningstar (July 23, 2017) "Do's and Don'ts for Beneficiary Designations."