What You Should Know About Beneficiaries on Your Retirement Accounts

While Benzinga mostly covers actionable trading ideas and news stories, we've decided to delve a bit deeper into personal finance.

The team at Benzinga would like to assist readers with not just their investing endeavors, but their financial lives as a whole. And today, we continue this effort with what you should know about beneficiaries on your retirement accounts.

Fortunately, the IRS permits retirement plans to be passed on to beneficiaries of your choice. Whom (or what) you choose and how you rank their claim on your assets can help ensure a smooth process versus a hectic foray of paperwork and grief down the line. Below is a high-level overview of what you should know about beneficiaries on your retirement accounts. Related: How To Protect Your Retirement Plans Who Can be a Beneficiary? Generally, anyone can be a beneficiary. However, if you're married, state law may require your spouse's consent if (s)he isn't first in line. This is the case in community property states including California, Texas, Washington, Wisconsin and several others. An entity, such as your estate or a charity, can also be named as a beneficiary. Primary vs. Contingent Beneficiaries You'll typically have the option to name both primary and contingent beneficiaries. Primary beneficiaries are first in line once your funds are passed on. So, for example, if you name your spouse as the sole primary beneficiary and your three children as equal contingent beneficiaries, your spouse would receive 100 percent of your account upon your death. Your children would only receive those assets if your spouse died with you. Options for Withdrawal A myriad of what-ifs are involved in transferring your assets to your beneficiaries upon death. Their choices will depend on their relationship to you, whether you've already begun withdrawing from your account and the type of plan. These may include:

• Installment payments
• Leave money in account (ex: inherited IRA)
• Lump-sum payments
• Rollover

If your spouse is under age 59 ½, (s)he may be able to use the funds now without incurring the typical 10 percent early-withdrawal fee. For example, if your spouse is 52 and inherits your IRA, (s)he could establish a beneficiary IRA and avoid taking a 10 percent hit. The specific choices and time frames involved will depend on your unique situation as well as those of your beneficiaries, so it is imperative they contact your plan administrator as soon as possible after your death. Final Note You're generally free to name any person or entity as a beneficiary on your retirement accounts. Keep in mind that your spouse may have to consent if (s)he isn't first in line, though. Upon your death, your beneficiaries will face a plethora of options as they work with your plan administrator to claim their share. Their decisions and timeliness will ultimately determine whether they receive the maximum amount or the IRS becomes a de facto beneficiary via their poor choices. As such, encourage your beneficiaries to consult a financial professional ASAP after your death to ensure the smoothest transition possible.