What Is a Contingent Beneficiary?

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Question: What Is a Contingent Beneficiary?

I have to choose contingent beneficiaries for my retirement account. What is a contingent beneficiary and how does it differ from a primary beneficiary?


A contingent beneficiary is the person or thing that receives the benefits of your account if the primary beneficiary can not. Contingent beneficiaries are next in line to receive benefits.

Think of contingent beneficiaries as a back-up plan or alternative choice. When you invest in a beneficiary-named financial account, such as an Individual Retirement Account, 401(k), insurance policy, 529 college savings planhealth savings account, or trust, you name the person or people you want to receive the assets in the account or take ownership should you pass away. These are designated as your primary beneficiaries. Contingent beneficiaries come in should the primary not be alive to collect the assets.

It is important to recognize that you can name more than one primary or contingent beneficiary. You allocate percentages for each beneficiary, specifying which percentage of the account they should receive or inherit. So, for example, you could name your spouse as the primary beneficiary of 100% of the account, and your two children could be contingent 50% beneficiaries. As an alternative you could name your spouse as the primary beneficiary of 50% of the account, with the two kids each named 25% primary beneficiaries.

You could also name a nonprofit charitable organization as your primary or contingent beneficiary, although you will likely have to talk to an account representative about how to do that. The point is, you can dice it up any way you choose.

Contingent beneficiaries and primary beneficiaries can be changed on most accounts unless the account is irrevocable (as is the case with some insurance policies and trusts). If you want to change the beneficiaries on an IRA or 401(k), it can be done quickly and easily—sometimes it can even be done online. Contact your IRA custodian (examples include bank, mutual fund, or brokerage company) where you have your IRA account to make any necessary changes. For a 401(k) or other employer-sponsored retirement plan, contact your plan administrator.

It is especially important to keep your beneficiaries up to date at all times. If you have worked for the same company for a long time or have been an account holder for a long period of time, you may want to revisit your beneficiary elections to make sure they still fit your current stage of life . It is also important to review and update your beneficiary information following any major life events. For example, the need to update your beneficiary information typically occurs after major life changes such as a marriage, birth, divorce or death in the family.

Another reason to update beneficiary information is that you may have just changed your plans or way of thinking about how to strategically pass on wealth to other family members or charitable organizations.

No matter what your current wealth transfer plans may be, it is always a good idea to review your selections on a regular basis for peace of mind that your information is up to date. Also keep in mind that if you are signing up for an account where the primary beneficiaries and contingent beneficiaries are irrevocable you must give careful consideration to who you name.

Keeping beneficiary information update is an important estate planning activity that can reduce family stress and confusion. If you have a will, don't assume it will take care of the beneficiary allocations for you. Accounts with a beneficiary designation are often referred to as will substitutes. For any accounts or life insurance policies where there is a named beneficiary on the account, your selection overrides any other instructions left in a will. This is why it is important to make sure you are aware of any contingencies, and keep your contingent beneficiaries up to date.

Disclosure: The content on this site is provided for information and discussion purposes only, and should not be the sole basis for your investment or tax planning decisions. Under no circumstances does this information represent a recommendation to buy or sell securities.