Primary beneficiaries
A primary beneficiary inherits their designated share of the account at your death, provided they are alive and willing to accept the funds. You can name one primary beneficiary or several. If you name more than one, you must allocate shares that add up to 100% of the account value.
Contingent beneficiaries
A contingent beneficiary inherits only if every primary beneficiary has predeceased you or has formally disclaimed their interest. Like primary designations, contingent allocations must also total 100% across all named parties. Naming contingent beneficiaries is optional but is good practice. Without them, funds that cannot pass to a primary beneficiary may default to your estate, which is generally the least favorable outcome for tax purposes.
How the tiers work together
Think of primary and contingent designations as a waterfall. The funds flow first to primary beneficiaries. If none are available, they flow to contingent beneficiaries. If no contingent beneficiaries are named, the account passes according to the custodian's default rules, which typically direct assets to the account holder's estate.
Keeping designations current
Life events such as marriage, divorce, the birth of a child, or the death of a named beneficiary can make an existing designation outdated. Review your beneficiary forms periodically and update them as circumstances change. The most recently submitted form controls, regardless of what prior forms or your will may say.