By Melissa Phipps. Retirement Planning Expert
Melissa Phipps is a financial journalist with 15 years of experience covering retirement planning and related investing and money management topics. Read more
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?
Think of contingent beneficiaries as a back-up plan. When you invest in a beneficiary-named financial account, such as an Individual Retirement Account. 401(k). insurance policy or trust. you name the person or people you want to receive the assets in the account should you pass away.
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These are primary beneficiaries. Contingent beneficiaries comes in should the primary not be alive to collect the assets.
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. Or you could name your spouse as primary beneficiary of 50% of the account, with the two kids each named 25% primary beneficiaries.
You could 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
Contingent beneficiaries and primary beneficiaries can be changed on most accounts, unless the account is irrevocable (as are 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.
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It's important to keep your beneficiaries up to date. If you have worked for the same company for a long time or have been an account holder for a long time, you may want to revisit your beneficiaries to make sure they fit your life now. Beneficiaries typically change after a marriage, birth, divorce or death in the family. You may have just changed your thinking. It's better to be sure. And if you are signing up for an account where the primary beneficiaries and contingent beneficiaries are irrevocable, give careful consideration to who you name.
If you have a will, don't assume it will take care of the beneficiary allocations for you. Where there is a named beneficiary on an account, that name overrides any other instructions left in a will. So 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.