Should you list your Minor Children as Beneficiaries of your Retirement Accounts?

Updated: Feb 15

My husband and I just had our first child in July of this year. There’s nothing like the anticipation of your first child to motivate you to finally get your estate documents in place. After establishing our newly minted trust, our attorney gave us “homework” to put our assets in the trust to ensure that it isn’t merely an empty shell.

As part of the follow-up tasks, we needed to review our listed beneficiaries on all of our financial accounts and update them accordingly. Typically, you would name your spouse as the primary beneficiary and either the trust or your child as the contingent beneficiary. Both of these options have their corresponding implications with pros and cons.

As new parents, our greatest concern is to make sure our affairs are in order so that in the unfortunate event that both of us pass, our child will be fully taken care of. It is important to note that minors cannot directly inherit retirement accounts. However, you can ensure that these funds are used for the care of your minor children if you put the appropriate plans in place.

Beneficiaries

A primary beneficiary is the person or entity that will inherit the asset in full. Once the asset becomes the property of the primary beneficiary, the contingent beneficiary loses all claims. Most states automatically consider your spouse the primary beneficiary to your retirement accounts. If you allocate less than 50% to your spouse, you will need their written signature of approval.


The contingent or secondary beneficiary [i] is the person or entity next in line to inherit the asset. If your primary beneficiary is no longer alive and no contingent beneficiary is listed, your undesignated asset will end up in probate court. Probate court can be costly and time-consuming.

After the passing of the SECUREAct of 2019, a minor is considered an eligible designated beneficiary (EDB). [ii] This is a classification for certain individuals inheriting retirement accounts who are exceptions to distribution rules, which we cover in the next section. EDBs include:

  • The owner’s surviving spouse

  • The owner’s child who is less than 18 years of age

  • A disabled individual

  • A chronically ill individual

  • Any other individual who is not more than 10 years younger than the deceased IRA owner


Naming Your Minor Child as the Contingent Beneficiary Should you designate your minor child as the contingent beneficiary of your retirement accounts, you must identify a custodian to administer the account.

Working with an attorney to ensure that the correct language is included in your last will and trust is imperative. If a custodian is not listed, the court will assign a custodian. Oftentimes this custodian will be compensated with the funds of the retirement account, leaving less to your minor children.

Most inherited IRAs must be depleted within 10 years according to the SECURE Act of 2019. Everyone who inherits a traditional retirement account, must take required minimum distributions (RMDs) immediately, but minors have a longer timeline to distribute all the funds of the account. Once the minor reaches the majority age (in most states this is 18, sometimes 21 or 26), then the 10-year rule kicks in. This is advantageous because the longer the funds remain in the account the more time it has to grow. [iii]

Choosing to name your minor as the contingent beneficiary and assigning a guardian custodian in your will and/or trust allows the guardian to use those funds as they see fit for your child’s care. This can be an advantage to give your chosen custodian the freedom and flexibility to use the funds as needs arise.

Naming the Trust as Your Contingent Beneficiary It’s important to note that if you name a trust (an entity) as the beneficiary and not a person, the retirement account is subject to a 5-year distribution rule instead of the 10-year distribution rule plus the additional time until the minor becomes the majority age. [iv] Some advantages to naming the trust as the contingent beneficiary of your retirement accounts are:

  • It allows you to create more structure for how you intend the money to be used and distributed for your minor’s care.

  • It limits the beneficiary's access to the funds if you feel that it would be detrimental to give your minor child a lump sum once they become majority age.

  • It allows you to include provisions to care for multiple children or children from a previous marriage.

  • If you have a complex estate, it can be an efficient tax planning tool.

Talk to Professionals with Expertise in Your Situation

As with family legacy planning in general, your beneficiary decisions depend on your personal situation and goals. Consider working with an estate planning attorney and financial advisor. A financial advisor who specializes in family legacy planning will take a long-term perspective to your plans, helping you to choose the optimal solutions for both you and your heirs.

Schedule a complimentary meeting to discuss your legacy planning needs today. __________________________________________________________________________________

[i] Smith, Anne Mollegen. “Be Smart in Naming Beneficiaries of Your 401(k).” Investopedia, Investopedia, 7 Dec. 2021, https://www.investopedia.com/articles/personal-finance/022516/be-smart-naming-beneficiaries-your-401k.asp.

[ii] Tuovila, Alicia. “What Is an Eligible Designated Beneficiary?” Investopedia, Investopedia, 7 Dec. 2021, https://www.investopedia.com/eligible-designated-beneficiary-definition-5025191.

[iii] O'Brien, Sarah. “Here's How to Handle the Complicated Rules for an Inherited 401(k) or IRA.” CNBC, CNBC, 11 Apr. 2021, https://www.cnbc.com/2021/04/11/how-to-handle-complicated-rules-for-inherited-401k-or-ira.html.

[iv] Designating a Trust as a Retirement Beneficiary. (n.d.). Investopedia. Retrieved December 20, 2021, from https://www.investopedia.com/retirement/designating-trust-as-retirement-beneficiary/


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