Estate Planning and Retirement Accounts: Why It’s About More Than Just the Money
Most people think of estate planning in terms of physical assets. The house. The car. The family heirlooms in the attic. But for many, the most valuable assets they leave behind are the ones tucked away in retirement accounts. IRAs, 401(k)s, pensions — these accounts often hold years of hard work, discipline, and planning. And yet, they are often the most overlooked part of the estate planning conversation.
At Fletcher Estate Planning, we help clients align their retirement savings with their broader estate goals. Here’s what you need to know to make sure your plan is clear, tax-smart, and built to last.
Why Retirement Accounts Matter So Much
For many people, retirement funds make up the bulk of their wealth. But they are handled differently than other assets. They do not go through your will unless something goes wrong. They pass by beneficiary designation. That means the paperwork tied to your retirement account might have more impact than the will you spent months writing.
A mistake here is not just inconvenient. It can be irreversible.
1. Beneficiary Designations Come First
Every retirement account asks for a beneficiary. You fill out a form. You name someone. And then you probably forget about it for the next twenty years.
That can be a problem.
Beneficiary designations override your will. If your account still lists a former spouse or a deceased parent, that is who gets the money. Not your current spouse. Not your children. Not whoever is named in your will. Keeping those designations up to date is not optional. It is essential.
2. Always Name Both Primary and Contingent Beneficiaries
Things change. People pass away. Relationships evolve. By naming a primary and at least one contingent beneficiary, you help make sure the funds end up in the right hands, even if something unexpected happens.
A missing contingent can lead to probate. Probate can lead to delays and disputes. That risk is easy to avoid.
3. Taxes Can Eat Into the Inheritance
Traditional retirement accounts are tax-deferred. That means the money has not been taxed yet. Your beneficiary will owe income tax on withdrawals. If they are in a high tax bracket, that tax bill can be steep.
The SECURE Act changed a lot about how retirement accounts are inherited. In most cases, the funds must now be withdrawn within ten years. That compressed timeline can increase the tax hit. Planning ahead can help spread the tax impact or reduce it altogether, depending on how your plan is structured.
4. Wills and Trusts Still Play a Role
Even though retirement accounts pass outside probate, your estate plan should still mention them. Not to control them, but to acknowledge them. This helps ensure consistency across your documents and reduces the chance of confusion or family conflict.
If you name a trust as the beneficiary of your account, that trust must be written with great care. Retirement account rules are strict. A mistake in drafting can trigger immediate taxation or disqualify the trust entirely. This is not the place for boilerplate language.
5. Blended Families Bring Extra Complexity
If you have remarried or have children from previous relationships, retirement accounts can become a flashpoint. Who gets what? When? How much control should a spouse have? These are not questions to leave to chance.
The beneficiary designation form might seem simple. But without context, it can accidentally exclude someone important or create tension between surviving family members.
6. Using Trusts as Beneficiaries
In some cases, it makes sense to name a trust instead of an individual. This can provide control over how and when distributions are made. It can protect funds from creditors or poor spending habits. But the trust must meet certain criteria to be recognized as a valid beneficiary.
If it is not written properly, the entire account could be taxed all at once. That kind of error is difficult, if not impossible, to fix after death.
7. Review and Adjust Over Time
Your estate plan should evolve with your life. Marriages. Divorces. Births. Deaths. A new job. A new financial advisor. Every major shift is a good reason to revisit your plan.
Retirement accounts are no exception. That old 401(k) from a job ten years ago? It might still name your first spouse. That IRA you opened in your twenties? It might have no beneficiary at all.
Final Thought
Retirement accounts deserve more attention than they usually get. They are not just investment tools. They are part of your legacy. And when coordinated properly with your estate plan, they can help ensure your family is cared for and your wishes are respected.
At Fletcher Estate Planning, we help clients take the guesswork out of planning for the future. If you want to make sure your retirement savings are protected, distributed properly, and aligned with your broader estate plan, we invite you to connect with us. Your future deserves clarity. Let’s make sure your plan reflects that.
