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If you’re putting together an estate plan or updating an old one, you may have questions about what happens to your retirement accounts and life insurance policies. Do they get passed on through your will? Are they taxed? Will your loved ones have to wait through the probate process? Here’s what you need to know.
Retirement Accounts: What to Consider
Retirement accounts like 401(k)s, IRAs, and pensions don’t usually pass through your will. Instead, they transfer directly to the person you’ve named as a beneficiary on the account paperwork. That makes them non-probate assets, meaning they skip the court process and go straight to your chosen heir.
However, here’s the catch: if your beneficiary designations are outdated or do not align with your estate plan, it can cause confusion and possibly lead to disputes.
Some common mistakes we help people avoid:
- Forgetting to update beneficiaries after a divorce or death
- Leaving retirement assets to a minor without naming a custodian
- Naming “my estate” as the beneficiary, which forces the account into probate
We’ll review your retirement accounts with you and help ensure they reflect your current wishes and align with the rest of your plan.
Are Retirement Accounts Taxed After Death?
It depends. Your beneficiaries won’t owe income tax on life insurance benefits, but retirement accounts are different.
If someone inherits your traditional IRA or 401(k), they’ll likely have to pay income tax on withdrawals. The IRS has rules regarding the timeframe for withdrawing those funds, depending on who inherits the account. Most non-spouse beneficiaries are required to withdraw the full amount within 10 years.
There are a few planning strategies that may help reduce the tax burden, such as:
- Leaving accounts to a spouse, who can roll them into their own IRA
- Spreading gifts among multiple beneficiaries to keep each inheritance smaller
- Using Roth accounts when possible (since qualified distributions are tax-free)
We’ll talk through these options with you and help create a plan that keeps more of your hard-earned savings in your family’s hands.
Life Insurance: More Than Just a Check
Life insurance is often thought of as a straightforward payout, but it can play a more significant role in estate planning.
Just like retirement accounts, life insurance proceeds typically go directly to the named beneficiary, bypassing the probate process. But there are a few things to think about:
- Is your beneficiary designation up to date?
- Will the person receiving the funds use them the way you hope?
- Are there any concerns about creditors, remarriage, or long-term care needs?
In some cases, it makes sense to use a trust as the life insurance beneficiary, especially if you want more control over how and when the money is used. This is something we can walk you through based on your family dynamics and financial goals.
What Happens If No Beneficiary Is Named?
If you don’t name a beneficiary—or if the person you named has passed away and there’s no backup, the account or policy usually gets paid to your estate. That creates two problems:
- It may trigger probate, which can delay access to the funds.
- The assets may be used to pay debts or taxes before they are passed on to your loved ones.
A simple beneficiary update can help you avoid these issues entirely. It’s one of the most effective and straightforward estate planning tools available.
How We Help You Make It All Work Together
At the Law Office of Carey Thompson, PC, we don’t just draft documents. We work with you to make sure every piece of your plan is aligned—including assets that don’t pass through your will.
That means:
- Reviewing retirement and life insurance beneficiary designations
- Coordinating your will, trust, and non-probate assets
- Addressing tax implications before they create surprises
- Helping you protect your family’s future, not just divide your assets
In short, a well-conceived estate plan will clarify your wishes, protect your loved ones, and preserve your legacy.
Let’s Review Your Plan—Together
If it’s been a while since you looked at your retirement accounts or life insurance policies, now’s a great time. We’ll help you update your designations, minimize your taxes, and ensure everything fits together seamlessly.
Contact the Law Office of Carey Thompson, PC, today to schedule a consultation. Let’s build a plan that gives you peace of mind and takes care of the people who matter most.