Most people assume that their will determines what happens to their assets when they pass away. For many types of property, that’s true. But for retirement accounts — your IRA, 401(k), 403(b), TIAA account, or 457(b) plan — it isn’t.
Retirement accounts are governed by beneficiary designations, not your will or trust. Whoever is listed in that designation receives the account directly — regardless of what your will says, regardless of family circumstances, and regardless of how much time has passed since you filled out that form.
This is one of the most consequential and most overlooked details in estate planning. And for educators and physicians — whose financial lives often center on TIAA accounts, 403(b)s, and defined-benefit pensions — getting it right matters enormously.
Why Beneficiary Designations Override Everything Else
When you open a retirement account, you’re asked to name a beneficiary. That designation becomes a binding legal instruction that operates entirely outside your estate. It does not pass through probate. It does not interact with your will. It goes directly — and quickly — to whoever is named.
This design exists for good reason: it allows retirement assets to transfer efficiently, without the delays and costs of probate. But it also means that an outdated designation can quietly redirect a significant asset to the wrong person.
Common scenarios where this creates problems:
A former spouse is still named. After a divorce, many people update their wills and legal documents but forget to update beneficiary designations on individual retirement accounts. In most states, the designation holds regardless of the divorce.
A named beneficiary has died. If your primary beneficiary predeceases you and you haven’t named a contingent beneficiary, the account may pass to your estate and go through probate, losing the tax advantages it was designed to preserve.
The designation is blank. Some accounts, particularly older TIAA contracts, may have incomplete or missing designations. In that case, the plan’s default rules apply, which may not align with your intentions at all.
Inherited IRAs: The 10-Year Rule and What It Means for Your Heirs
When a non-spouse beneficiary inherits a traditional IRA or 401(k), they cannot simply leave the money in the account indefinitely. Under the SECURE Act and subsequent IRS guidance, most non-spouse beneficiaries are now required to withdraw the full balance of an inherited IRA within 10 years of the original account holder’s death.
This has significant tax implications. If your beneficiary is in a high-earning period of their career — a physician finishing residency, a professor in their peak earning years — inheriting a large traditional IRA and being forced to distribute it over 10 years could push them into a substantially higher tax bracket each year.
Roth IRAs are also subject to the 10-year rule for non-spouse beneficiaries, but the distributions are tax-free, making them a considerably more favorable asset to inherit.
Spouses have more flexibility. A surviving spouse can roll an inherited IRA into their own IRA, defer distributions under their own RMD schedule, and treat the account as their own, preserving significantly more tax-deferred growth.
Roth vs. Traditional: What Your Heirs Actually Receive
The account type your heirs inherit has a direct bearing on how much they keep after taxes.
Traditional IRA / 403(b) / TIAA: Contributions were made pre-tax, and every dollar distributed to you or to your beneficiaries is taxable as ordinary income. Your heirs receive the full account value but owe income tax on every withdrawal they take.
Roth IRA: Contributions were made after-tax. Qualified distributions, including those made by beneficiaries, are entirely tax-free. A Roth IRA passed to a beneficiary is one of the most tax-efficient inheritances available.
Converting traditional IRA assets to Roth during years when your income is lower, or when tax rates are favorable, can meaningfully reduce the tax burden your heirs will face.
For TIAA Account Holders: A Few Additional Details
TIAA retirement accounts have some characteristics that differ from standard IRAs and 401(k)s and deserve specific attention:
Annuity contracts within TIAA may have their own beneficiary designation forms separate from the investment accounts. It’s important to confirm that designations are complete on all contracts, not just the primary account.
Spousal rights may apply in certain TIAA contracts, depending on when the account was established and the institution’s plan documents. A surviving spouse may have rights to certain benefits even if not named as primary beneficiary.
Income election decisions made at retirement affect what, if anything, passes to a beneficiary. A single-life annuity ends at death with nothing passing to heirs. A joint-and-survivor option continues income to a named beneficiary. This election is irrevocable and deserves careful consideration before it is made.
What a Coordinated Review Looks Like
A beneficiary designation review should be part of a broader estate planning conversation that includes:
Pulling current designations across all retirement accounts: IRA, TIAA, 403(b), 457(b), pension, and life insurance policies
Confirming that primary and contingent beneficiaries are named and current
Coordinating beneficiary designations with your will, trust, and overall estate strategy
Evaluating whether Roth conversion makes sense to reduce your beneficiaries’ future tax burden
Considering the income and tax implications your heirs will face under the 10-year rule
This is a review that takes a few hours. The decisions it informs can affect your family for decades.
Take the Next Step
If you haven’t reviewed your beneficiary designations recently, or if a major life change has occurred since you last looked, a conversation is worth scheduling.
At Tidewater Wealth Management, we help clients coordinate their retirement account beneficiary strategy with their broader estate and legacy plan, so that what they’ve built passes to the people they intend, in the most tax-efficient way possible.