Overlooking beneficiary designations is a big IRA mistake: attorney

Reviewing IRA Beneficiary Designations Can Help Investors Avoid Costly Estate Planning Errors

Think of your IRA like a treasure chest you want to pass down to your family. But if you forget to put someone’s name on the chest, the treasure could end up in the wrong hands—or get stuck in a long, expensive maze. That’s why knowing how to handle IRA beneficiary forms is so important for investors.

Why IRA Beneficiary Choices Matter for Investors

Millions of Americans have IRAs to help them save for retirement. In fact, about 58 million U.S. households owned IRAs in 2024, according to the Investment Company Institute. That’s nearly half of all households, and together, these accounts hold over $16 trillion!

But here’s the catch: if you don’t keep your beneficiary forms updated, your savings could go to someone you didn’t intend—like an ex-spouse—or get tied up in court. This can affect not just your family, but your entire financial plan.

Bulls: The Upside of Getting It Right

  • Your money goes where you want. If you name the right beneficiary, your IRA can pass smoothly to your loved ones.
  • Save on taxes. Heirs usually have up to 10 years to spend the money, which gives them more time to plan for taxes.
  • Avoid legal delays. Naming a beneficiary means your IRA doesn’t have to go through probate—a lengthy and expensive court process.

Bears: The Downside of Mistakes

  • Outdated forms can cause trouble. If you forget to update your beneficiary, your money might go to someone you no longer want, like an ex-spouse.
  • The estate is the “worst beneficiary.” If you don’t name anyone, your IRA usually goes to your estate. This means:
    • Your heirs may pay higher taxes—up to 37% after just $15,650 in income for 2025.
    • The money can get stuck in probate court, which is slow and costly.
    • The estate usually has to empty the IRA within five years, instead of 10, which can force rushed withdrawals and higher taxes.
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How Often Do People Make These Mistakes?

It’s more common than you might think. Experts say forgetting to update IRA beneficiaries is the “biggest mistake” people make. One survey found that more than 1 in 5 people haven’t reviewed their beneficiary forms in over five years (Fidelity).

And remember, the name on your IRA form beats what’s written in your will. So even if your will says one thing, your IRA could go to someone else entirely if your form isn’t up to date.

What Investors Should Know

  • IRAs are growing fast, mostly because people roll over old 401(k) accounts when they change jobs or retire.
  • With so many accounts, it’s easy to lose track of your beneficiary forms.
  • Even a small mistake can create big headaches for your family—and cost them money.

Investor Takeaway

  • Check your IRA beneficiary forms every year, especially after big life changes like marriage, divorce, or having a child.
  • Update your forms if you roll over an old 401(k)—don’t assume your choices carry over automatically.
  • Talk to your heirs about your wishes so there are no surprises.
  • Ask a financial advisor for help if you’re unsure how to set up your beneficiaries.
  • Remember: The name on your IRA form is what counts, no matter what your will says.

By staying organized and double-checking your forms, you can make sure your hard-earned savings help the people you care about most.

For the full original report, see CNBC

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