A beneficiary is the person or entity who inherits your individual retirement account (IRA) assets when you pass away. Naming beneficiaries for your Gusto IRA helps make sure your assets go to the right people and avoids delays from the probate process. Use this article to understand how IRA beneficiaries work and how to add or update them.
A beneficiary is the person or entity who inherits your IRA assets when you pass away. You can name more than one beneficiary and set a percentage of assets for each. Percentages must add up to 100%.
There are two types of beneficiaries.
A primary beneficiary is your first choice to inherit your IRA assets. You can name more than one primary beneficiary and split the assets among them by percentage.
A contingent beneficiary inherits your assets only if all primary beneficiaries have passed away or disclaim their inheritance. You can also name more than one contingent beneficiary.
Your marital status affects who you should name as your IRA beneficiary and what to consider before you choose them.
Your spouse is not automatically your IRA beneficiary the way they would be with a 401(k). You can name anyone as your beneficiary. However, if you're married and name someone other than your spouse as your primary beneficiary, we recommend letting your spouse know — they may have legal rights to the assets depending on your state's laws.
If you do not name a beneficiary, your assets will go through your estate's probate process. This can take time and may not reflect your wishes. We recommend naming at least one beneficiary to avoid this.
You can also name special types of beneficiaries, like minors, trusts, or organizations.
You can name a minor as a beneficiary. However, minors cannot legally manage inherited assets until they reach the age of majority in their state. If you name a minor, consider also naming a custodian or trustee to manage the assets on their behalf.
You can name a trust as a beneficiary. If you do, the trust document must be set up to comply with IRA distribution rules. We recommend working with an estate planning attorney to make sure the trust qualifies.
You can name a non-person entity — like a charity or organization — as a beneficiary. Non-person entities do not have a life expectancy, which affects how distributions are calculated after your death.
Note: If you name a non-person entity as your sole beneficiary, you may face more restrictions on how inherited assets can be distributed. Consider consulting a financial or legal advisor before making this choice.
If you do not name a beneficiary, your IRA assets become part of your estate when you pass away. This means they go through probate, which can be a lengthy legal process. Your assets may not go to the people you intended, and the timeline for distribution is out of your control.
To avoid this, name at least one primary beneficiary. You can update your beneficiaries at any time from your Gusto Retirement dashboard.
To add or update your IRA beneficiaries, follow these steps.
Sign in to your Gusto Retirement dashboard.
Select your name or profile icon in the top right corner.
Select Account settings.
Select Beneficiaries.
Add or update your beneficiaries, then select Save.
Pro tip: Review your beneficiaries after major life events like marriage, divorce, the birth of a child, or the death of a beneficiary. Keeping your beneficiaries up to date helps make sure your assets go to the right people.