The beneficiary designation audit

By Tom, CPA · Updated October 25, 2026

TL;DR: Most of an early retiree's net worth usually passes by beneficiary designation, not by will. Once a year and after every life event, list every account, confirm primary and contingent beneficiaries, fix outdated names, avoid naming minors or your estate by default, and keep confirmations.

Educational only, not tax, legal, or investment advice. Examples are illustrations, not predictions. Rules and limits change; verify current figures and talk to a qualified professional about your situation.

Retirement accounts, life insurance, annuities and HSAs pass directly to the people named on their beneficiary forms. Bank and brokerage accounts can do the same with payable-on-death (POD) or transfer-on-death (TOD) registration. These designations generally override your will. For FIRE savers whose wealth sits mostly in 401(k)s, IRAs and HSAs, this hour of paperwork can matter more than anything in the will.

Here's a step-by-step audit checklist. It's general education; for complex families or trusts, have an estate attorney review your choices.

CPA Warning Label: Your will is the document everyone talks about. The form you filled out in 2011 during new-hire orientation is the one that actually decides who gets your 401(k).

Step 1: Inventory every account

List every asset that could pass by designation or registration:

• Current and former employer 401(k), 403(b), 457(b) plans and pensions
• Traditional, Roth, SEP and SIMPLE IRAs, and any inherited IRAs
• HSAs
• Individual and group life insurance, and annuities
• Brokerage accounts with TOD registration and bank accounts with POD
• 529 plans (these have a successor owner, not a beneficiary in the same sense)
• Real estate with a transfer-on-death deed, where your state allows it
• Vehicles, where states allow TOD titling

Old 401(k)s from jobs you left years ago are the most common blind spot. Consolidating them can make the audit easier.

Step 2: Pull the current designation for each

Log in or call each custodian and get the beneficiary on file, in writing if possible. Don't rely on your memory or your copy of the form; custodians merge, records get lost, and online forms sometimes didn't save. Record for each account: primary beneficiaries, contingent beneficiaries, percentages, and date last updated.

Step 3: Check against your current wishes

1. Does every account have a primary beneficiary?
2. Does every account have a contingent beneficiary, in case the primary dies first?
3. Do percentages add to 100%?
4. Are any named people now ex-spouses, deceased, or estranged?
5. Does the plan match your will and trust? Inconsistencies cause problems.
6. Are minor children named directly? Usually a trust or custodian is better.
7. Is anyone receiving government benefits that an inheritance could disrupt? Consider a special needs trust.
8. Is "my estate" named, or is nobody named so the estate gets it by default? That often sends assets through probate.

Step 4: Understand spousal rules

Many employer plans governed by federal law require that a spouse be the beneficiary unless the spouse gives written, notarized or plan-witnessed consent to a different choice. IRAs generally don't have that federal rule, though community property states can add complications. Divorce doesn't automatically change every designation; some states revoke ex-spouse designations by law, but federal law can override that for employer plans. Update the form.

Step 5: Think about tax on what heirs inherit

• Traditional IRAs and 401(k)s: withdrawals are taxable income to heirs. Most non-spouse beneficiaries must empty inherited accounts within 10 years.
• Roth accounts: generally tax-free withdrawals for heirs, though the 10-year rule still applies to most non-spouse beneficiaries.
• Taxable accounts: generally get a step-up in basis at death.
• HSAs: a spouse beneficiary can treat the HSA as their own; for other beneficiaries, the account generally stops being an HSA and its value becomes taxable to them.
• Life insurance: the IRS says death proceeds are generally not taxable income.

This can influence who gets what. A beneficiary in a low bracket might be a better recipient of a traditional IRA, while a high earner gets the Roth or taxable assets.

Illustration: the forgotten 401(k)

Illustration: Marcus, 51, retired early with $1.6 million. His will leaves everything to his second wife, Dana. His audit finds:

His will was fine. More than a quarter of his money was headed to the wrong person or through probate anyway. The fix took a few forms.

Step 6: Submit, confirm, and store

• Submit changes through the custodian's official process.
• Get written confirmation and save it with your estate documents.
• Tell your executor where the confirmations are.
• Calendar an annual review, plus a review after marriage, divorce, birth, adoption, death, or a move to a community property state.

Common mistakes

• Naming a minor directly, which may require a court-supervised guardianship of the property.
• Naming "children" without addressing what happens if one dies first. Per stirpes vs per capita choices determine whether a deceased child's share goes to their kids.
• Naming your trust without checking whether its terms work well for retirement accounts.
• Forgetting the employer life insurance policy.
• Assuming a rollover carried the beneficiary over. It usually doesn't; new accounts need new forms.

Special situations

• Blended families: naming a new spouse as sole beneficiary can unintentionally disinherit children from a prior marriage, because the surviving spouse can later name anyone. Splitting accounts or using a trust can protect both.
• Charitable goals: charities pay no income tax, so they can be efficient recipients of traditional IRA money, leaving Roth and taxable assets to people.
• Beneficiaries with creditor or spending problems: a trust can add protection a direct designation can't.
• Non-citizen spouses: special estate tax rules may apply; get advice.
• Living abroad: some custodians restrict accounts for foreign-resident beneficiaries; check in advance.

Make it easy on your executor

Keep a one-page summary listing each account, custodian, phone number, approximate value, and current beneficiaries, and store it with your will. Your executor and beneficiaries need to know which accounts exist before they can claim them. Unclaimed accounts from old employers are common, and you're the only person who knows they're there.

Quick audit checklist

1. List every account and policy.
2. Get each current designation from the custodian.
3. Confirm primary and contingent beneficiaries and percentages.
4. Remove ex-spouses and deceased beneficiaries.
5. Avoid naming minors directly and avoid defaulting to your estate.
6. Get spousal consent where an employer plan requires it.
7. Consider tax treatment when splitting accounts among heirs.
8. Save confirmations; review yearly and after life events.

Do the full audit at least once a year, ideally at the same time every year, such as during open enrollment, and immediately after any marriage, divorce, birth, death or rollover.